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Edited Transcript of NDX1.DE earnings conference call or presentation 11-May-20 12:00pm GMT

Q1 2020 Nordex SE Earnings Call

Norderstedt May 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Nordex SE earnings conference call or presentation Monday, May 11, 2020 at 12:00:00pm 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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* George Featherstone

BofA Merrill Lynch, Research Division - Research Analyst & Associate

* Martin Wilkie

Citigroup Inc, Research Division - Director

* Rajesh Kumar Singla

Societe Generale Cross Asset Research - Equity Analyst

* Sean D. McLoughlin

HSBC, Research Division - Associate Director of Clean Technology

* Sebastian Growe

Commerzbank AG, Research Division - Team Head of Industrials

* Wolfgang Felix

Sarria Asset Management - Founder

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Presentation

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Operator [1]

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Dear, ladies and gentlemen, welcome to the Q1 report 2020 of Nordex SE. At our customer's request, this conference will be recorded.

(Operator Instructions)

May I now hand you over to Mr. Zander, who will start the meeting today. 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, (inaudible). Good afternoon, ladies and gentlemen. On behalf of Nordex, I would like to welcome you to our analyst and investor call showing the results of the first quarter 2020. Our CEO, José Luis Blanco; our CFO, Christoph Burkhard; and our CSO, Patxi Landa, will guide you through our presentation, sharing the latest developments with you. Afterwards, as you have heard, we will open the floor for Q&A. (Operator Instructions) And now I would like to hand over to our CEO, José Luis. 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. Thank you, Felix. Thank you very much, ladies and gentlemen. Good afternoon. Thank you for joining to our Q1 2020 results presentation. In corona times, Christoph Burkhard, CFO, with me here in Hamburg; Patxi Landa, connecting from Spain due to travel restrictions.

Agenda that we have prepared for today is very much standard, starting with an executive summary, COVID-19 and the impact for the sector and Nordex. Then we will guide you with the developments in markets and orders. We will deep dive into the financial performance of the company. We will inform you about operations and technology, this time only operations. We will explain as well why we withdraw the guidance for 2020. We'll open for Q&A, to finalize with the key takeaways of the session.

So starting, executive summary. I would like to -- we would like to summarize that despite starting to see some corona disruption in Q1 2020, Q1 2020 results that we present today are in line with previous expectations.

Second and very relevant and especially very relevant during this corona times is that we have successfully refinanced our multicurrency guarantee facility of EUR 1.21 billion until April 2023.

Very remarkable as well is the order intake momentum, 1.6 gigawatts, which is 59% higher than Q1 2019.

This, combined with the next bullet point that remarkable order intake but as well remarkable is that out of this order intake, 85% comes from Delta4000. And as we have, in differently quarterly calls, previously informed to you, these products lands better margins, we always mentioned, in the 3% to 5% range. So as a consequence, this order intake 2020 is not only bigger in size, but should be as well expected better in contribution margin.

Combination of the above-mentioned is a book-to-bill of 1.37, which signals future growth, that with a combination of better margins, is signaling a better 2021 in a like-for-like comparison.

Last, and despite the very positive above-mentioned perspectives for 2021, 2020 remains and is uncertain due to the corona situation. This is impacting global supply chains. And as a consequence, there is no sufficient stability in the supply chain and visibility, so we decided to withdraw our guidance for 2020.

If we move to the next slide to share with you our view about this corona crisis or this COVID-19 pandemic on Nordex business performance. First of all, the management priorities cannot be other than protecting our people or our business partners. This is the first priority for Nordex. Since this was declared a pandemic, we just after created a cross-functional COVID taskforce to manage the crisis situation in a continuous basis to deal and react very quickly to the different changes in restrictions for goods, people, factories, lockdowns and so on. The focus is mainly primarily two: ensuring business continuity at all possible options with a strong focus on supply chain continuity as well as project execution and, very important due to the disruption, a clear focus in cash flow management and working capital.

Global impacts of this pandemic, from a global perspective, you know the pandemic started in China, causing disruptions in China at the beginning and then globally later in Europe and, recently, in other countries worldwide where we operate. Shutdowns and restrictions are impacting value change at different stages and at different times, started with China, then Europe, and now last -- after Europe being to normal production, we are still suffering some impacts in India and in Mexico.

The flow of goods is -- has been impacted, and there are restrictions, but as well travel restriction for people that are executing projects in those different -- in those different countries.

In the positive side, we saw that despite the drop in -- temporary drop in energy demand and in prices, we see that green energy and wind energy is one of the sectors that governments and politicians are somehow building to recover economies and to protect employment. So we do not see, at this point, a decrease in demand. We see a stable demand, as later Patxi will share with you, and we see movement in different governments to use wind energy as a tool to invest, to accelerate investments, accelerate the transition to a carbon-free economy in order to protect jobs.

Impact of this situation for Nordex. I mean, there is a very high level of reduce in capacity utilization due to temporary shutdowns, example today is Mexico, but we were as well affected in other locations of the world. Less capacity means higher costs due to the less capacity and due to the disruption in executing the projects. It could trigger as well delays -- it is triggering as well delays in installations, leading to a temporary increase on inventories, because even mismatching components. As well, we are negotiating with customers and suppliers liquidated damages for the situation and prolongation of costs. And this situation is delaying our ramp-up that we were in the middle, enlarging our supply chain.

In summary, I will say those disruption affect temporary the supply side of our business, not very much the demand side of our business, which we see a stable demand.

And with this, I would like to hand over to Christoph for the P&L.

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [4]

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.No, to Patxi.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [5]

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To Patxi, sorry. Sorry. Patxi.

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Patxi Landa, Nordex SE - Chief Sales Officer & Member of Management Board [6]

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So looking at the market, as José Luis was just mentioning now, today, we continue to see a strong demand for 2020 orders across all regions. We had a strong start to the year with 1.6 gigawatts of new turbine orders in the first quarter, and this was up almost 60% against the same period last year.

From a pricing perspective, ASP continued to be stable at EUR 0.72 million per megawatts.

And regionally, Europe made a very significant contribution to the sales in the quarter with close to 80% of the total orders.

Very importantly, a very significant majority of the orders came with Delta4000 turbines. And as you know and was just mentioned by José Luis, those are more profitable than the other turbines in the portfolio. And the important consequence is that the average profitability of the backlog continues to improve.

So in summary, we see strong demand for the rest of the year despite COVID. We see Q2 with expectations to be a relatively slower quarter and the second half of the year with expectations to be stronger from an order perspective. Majority of the orders to come for the rest of the year also are expected to come with Delta4000 turbines. This would further improve the backlog quality in terms of profitability.

If you go please to the next slide. On the Service side, Service sales grew 16% versus Q1 2019 and represented 10.6% of group sales in the quarter. Segment profitability continued to increase with 18% EBIT margin in the quarter.

If you please go to the next slide. And from a backlog perspective, the total turbine order backlog stood at EUR 5.8 billion at the end of Q1, increasing 32% with respect to the end of Q1 2019. From a Service perspective, Service order backlog stood at EUR 2.6 billion for a combined order backlog of EUR 8.4 billion at the end of the quarter.

And with this, I hand over to Christoph for the financials.

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [7]

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Thank you very much, Patxi. Good afternoon, ladies and gentlemen. Welcome also from my side. And I would like you -- to guide you now, as always, through our first quarter 2020 financials.

But before doing this, I would like to briefly summarize the highlights from our recently refinanced guarantee facility. With a distinguished group of 21 international financial institutions and insurance companies led by BNP Paribas, Commerzbank, HSBC, Intesa Sanpaolo and UniCredit, we have extended our EUR 1.21 billion guarantee facility until April 2023. And this provides us right on time in this challenging times with the needed planning certainty. The terms and conditions of the facility remained largely unchanged, except one important aspect. With the newly introduced feature of an ESG rating-linked component also, this facility is now being classified as a green facility. With this, we could accomplish our objective to have all our debt financing consisting of green instruments.

And with this, now moving to the financials. Yes, José Luis mentioned already, the first quarter 2020 went according to our expectations. And starting with the income statement, sales of almost EUR 1 billion compared to roughly EUR 400 million in Q1 2019 do confirm the growth trends the company has been working towards over the previous months.

We generated EUR 13 million EBITDA, representing 1.4% EBITDA margin in Q1, meeting our expectations.

And the gross margin of 16.2% reflects the execution of some low-margin legacy projects.

Now looking at the balance sheet. We see a slight prolongation compared to the previous quarter due to the high activity level. This is also a result of a slight increase in working capital, mainly driven by inventory. And we had a decent cash position of EUR 432 million at the end of Q1.

Now going to the working capital with minus 7.5%, the ratio shows only small increase due to some inventory buildup, as mentioned before, compared to the very low minus 9.1% at the year-end 2019. And the current level of minus 7.5% in that respect is still very good and even more compared to the level of minus 1.5% of sales that we had a year ago.

And I already indicated in our previous call that looking at the increasing volume path we are on, we might expect an increase in working capital going forward. And this might also be supported by COVID-19-related impacts, as just mentioned by José Luis before.

This brings me to the cash flow statement. Free cash flow at the end of Q1 stood at minus EUR 57 million, reflecting the increased working capital and the investing activities.

Investments in Q1 2020 amounted to EUR 37 million, and the number represents our preparation for and support of the high execution levels with respective equipment as well as the continuous global expansion of our global supply chain.

Last but not least, looking at our capital structure, we do see the leverage curve staying at 1.2 at the end of Q1 2020, below our long-term target level of 1.5. And the equity ratio slightly decreased due to the net loss incurred during the first quarter.

Now before handing over back to José Luis, I would like to conclude the financials by anticipating a question from your side. As you are all aware of, the German state is supporting its industry with the largest financial support programs in international comparison in order to cushion temporary COVID-19-related uncertainties. And as a matter of precaution and in order to explore all means available in the best interest of the company during this phase of global uncertainty, we are carefully analyzing the instruments at hand and we have started to prepare the application process for a state-supported cash backup facility. This is to secure the availability of such additional funds in case needed. We were working towards completing the application process by the end of June.

And with this, back to José Luis.

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

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Thank you very much, Christoph. The operations side of the business is somehow, there are 2 parts, one that reflects the P&L, and this is the high level of activity in installations and turbine assembly, as well as signals you the level of activity that is expected in the remaining part of the year.

If we start with installations, we have increased our installations 244% compared to the same period of last year to close to 900 megawatts in 21 countries. Geographical split, majority of the volume in Europe, but as well relevant Latin America and North American part.

We are, despite the COVID challenges, we are still planning for installation levels in the range of 5 to 6 gigawatts in the year.

Production, substantial increase in production activity in a self-production, 135% increase compared to same period of last year, 448 turbines; 210 Delta4000, most of them Delta4000 in Germany; 147 in Spain, starting as well Delta4000 in there; 61 in India; 23 in Brazil, 7 in Argentina.

When we talk about blades, a slight increase in units, but you need to take into account that those units are Delta4000. So better -- more megawatts per rotor.

So in-house blade production, 321, 168 in Germany, 108 in India, 45 in Mexico. Spain was at this time installing production lines for Delta4000 blades and was as well in lockdown, that now is back in operation.

We keep balanced in-house outsource of approximately 1/3, 2/3. So 528 units were procured from suppliers in Turkey, China and Brazil.

So this is very much what we have in operations. Just to reiterate the guidance withdraw. I think guidance withdraw was mainly driven by the supply chain disruptions that we saw starting in China then moving to Europe, lockdowns in Spain, reduced workforce in Germany, this is now solved. But then the pandemic moved to the Americas, where we have one factory affected. So there is no sufficient visibility to be precise about the activity level that we are going to have in our factories as well as some projects or in countries where we do business for our customers are under lockdown. So it's very difficult to predict the number of installations. This is going to be mainly driven by how the pandemic evolves in those given countries. But this was the view of the company a few weeks ago, and we keep, as we mentioned, in the COVID task force, doing all of our efforts to protect cash and to protect business continuity to try to mitigate the impact as much as we can.

And with this, we open for Q&A.

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Felix Zander, Nordex SE - Head of IR [9]

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Thank you very much. Please, operator, please [at this time] and open the line for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

And the first question is from Sean McLoughlin, HSBC.

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Sean D. McLoughlin, HSBC, Research Division - Associate Director of Clean Technology [2]

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First, it's just to understand the -- I suppose at the activity levels over the year, you're talking about a more kind of active second half. I mean, how are you kind of in dialogue with your customers about extending timelines? You talked about cost sharing. If you could give us just a little more details about how much your customers are willing effectively to share the burden and how much falls on to you, that would be very, very helpful.

Secondly, on the guidance. Working capital guidance was negative. Do I assume then that this could -- you think it could be ending the year in positive territory?

And secondly or rather thirdly, on just on cost reduction levers, thinking over the next quarter or 2, I understand a lot of the CapEx is strategic, so you can't really pull that back. Your staff costs have come up quite strongly. I mean where are areas which -- in which you may look to cut costs to preserve cash over the next quarter?

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

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Thank you. I will take 2 questions, and then, Christoph, we take together the working capital. But I think there is an overarching respond to the three is it's a moving target.

I mean, first, the question regarding customers. This is a customer-to-customer, contract-to-contract negotiation. Of course, a pandemic is a force majeure, and we have claimed force majeure in our contracts, but this, in majority of the case, gives you right for extension of time. But generally speaking, I mean generally speaking, every party needs to carry their own extra costs. And of course, if you justify it properly, you can be granted extension of time, so you mitigate your liquidated damages, compensations for delivering late, the project. And there is no -- we cannot be more specific because we are in -- ongoing today, dealing with this situation, discussing with the customers, the first priority. And we have the same interests, getting the projects done as soon as possible. And we have the same interest, protecting our people and doing things according to law. So we are lobbying together with our customers in different geographies to convince governments that we can operate safe, to mitigate their pain and to bring the projects to commercial operation. But from there, to give you a specific, it's too early. I mean, it's really too early.

Regarding cost reduction and CapEx and so on, I think you need to understand that we are executing a growth path profitability improvement over time, and this very much the key factor is the supply chain transformation and the product transformation. So we are building a 6-gigawatt plus company from 4 gigawatts last year. We are still have the plans to produce those 6 gigawatts. And most of this growth is coming from the Delta4000, which is the most profitable product, 3 to 5 percentage points better profitability. And it's the product that the market is going to demand in the future. So -- and more important, we have delivery commitments for the backlog because we have a huge backlog of products that we cannot afford to say, well, delay the investments and you set up blade most later or factory later. That possibility doesn't exist. We have delivery obligations. And for delivery obligations, we need to set up the factories with the right product.

Of course, as cash, was mentioned by Christoph, is crucial in those current times, we are postponing any activity not directly related to the projects, very good investments that we cannot do at this time, that we need to postpone for the future and as well as finding cash-generation activities in maybe some areas of the company because it's the first thing to protect. And working capital, I think, is uncertainty.

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [4]

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I fully understand where you're coming from, Sean. But to be quite frank, I do not really feel comfortable to -- because I would really start speculating. So as José Luis mentioned, too many moving parts still.

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Operator [5]

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And the next question is from Martin Wilkie, Citi.

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Martin Wilkie, Citigroup Inc, Research Division - Director [6]

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Sorry, apologies, yes, I was on mute. Sorry about that. And yes, Martin from Citi. The first question was on hindering. Obviously, a strong start to the year for orders. We have heard some industry comments about delays in auctions or paperwork holdups in certain admin parts of the industry. Just to get some sort of sense as to how you're seeing the prospect for new orders given some of that.

And the second question was on pricing. It seems across the industry and for yourselves that pricing seems pretty stable. Is that your continued view, given that you've got the Delta products coming out? Or just some thoughts on the pricing outlook.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [7]

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Patxi, can you elaborate, please?

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Patxi Landa, Nordex SE - Chief Sales Officer & Member of Management Board [8]

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Yes, I can take them. From a pricing perspective, yes, that was to answer your second question, we believe that the trend will continue and I don't see any modifications there.

With respect to the order momentum, as I was mentioning before, we do expect second quarter that might be slower than anticipated, but it's not due to COVID. We are seeing truly not a lot of impact out of COVID. For instance, the auctions that were canceled, there is significant amount in the free market with private CDAs, and that is sort of ensuring the activity in selected markets that are affected by those disruptions. And as a consequence, and I would say that, that is an effect that we are seeing across the board. So it's not specific markets that are being hit as we see today. And I don't want to be prudent there. But it's true that we are already 4 months into COVID, and we'll continue to see good levels of activity for the rest of the year.

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Operator [9]

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The next question is from Sebastian Growe, Commerzbank.

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

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2 areas of question. The first one is around the order pipeline as well from my side. After you have said that you do expect, obviously, overall demand to remain pretty strong, did I hear correctly that you said fiscal '20 should be stronger than fiscal '19 overall in terms of order intake? Or did I get that wrong? And related to it, you have been stressing repeatedly the margin uplift potential from the Delta4000 was 3 to 5 percentage points higher. We've seen obviously also your peers coming up with 5-megawatt products. I was just questioning if there's any sort of, what can I say, repercussion here on the discussions that there is less of a kind of stickiness level because simply others are catching up, which have been eventually running behind for a while. Whatever you can share and say to it, that would be appreciated.

And the other question said is around working capital and the financing leeway. I appreciate your comment, Christoph, that you don't want to speculate. But given that you have been starting to at least analyze the KfW possibility, can you just give us an idea at least when it comes to the overall volume that you are targeting? From what I've been seeing on the report, you have about EUR 200 million of leeway to the credit facility. So the question obviously is how much of a swing do you want to bridge via this KfW loan facility?

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Patxi Landa, Nordex SE - Chief Sales Officer & Member of Management Board [11]

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I can take the first 2, Sebastian. With respect to the -- I would be guiding the year if I started with guiding with respect to 2019, which obviously we don't want to do at this point in time. But what I can certainly share with you is that we see a very good visibility in the pipeline, and that's what we see today and that I can reiterate that without comparing it to 2019 at this point in time.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [12]

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And with respect to profitability and competitiveness of Delta4000, Delta4000 started as a 4-megawatt platform, but it's already a 5-megawatt platform. So it's competing today with the newest products that our competitors have put in the market, and in that competition is where we see still that the product delivers 3% to 5% more profitability than the other products that we have in the portfolio.

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [13]

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Yes, Sebastian, Christoph here. Sebastian, it is -- sorry that I have to repeat myself, yes, it is simply too early. We are just about running scenarios and trying to dimension it right also, of course, towards the institution we are applying, so I don't want to, again, start already putting a number out, which is simply premature. But we will certainly keep the markets very, very closely up-to-date in that respect.

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Sebastian Growe, Commerzbank AG, Research Division - Team Head of Industrials [14]

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Okay. Fair enough. And can you just -- sorry, the last follow-up in this regard. Give us a sense about the cost that is related to any such facility and how that compares to the other bond metrics that you have?

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

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What I can say without having already the final picture here, compared to high-yield bonds, certainly, the costs are lower. But that is certainly also a function of -- I mean, it has to do with the state support of that component. And at the same time, also it has to do with the maturity. So as a very general answer, the costs will be lower, but also the exact costs are not yet known to me.

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Sebastian Growe, Commerzbank AG, Research Division - Team Head of Industrials [16]

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But if I would speculate, it would be about half the magnitude of the bonds. That is at least what I can see from other companies. That would make sense to you? Or would it be very far from what you eventually have on mind?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [17]

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I think on a plausibility level, I think that would make sense to me, yes.

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Operator [18]

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And the next question is from Wolfgang Felix, Sarria.

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Wolfgang Felix, Sarria Asset Management - Founder [19]

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Most of my questions have already been answered. I was just going to ask on your sales actually this year, would it be correct then to say that you think your sales would be mostly limited by I suppose what you can deliver this year as opposed to further negotiations for extensions from your clients?

And maybe second, your liquidity. Am I right in gauging that at around EUR 600 million?

And third, with respect to that new facility. I'm not sure if you've just answered this already somewhere, I apologize if you have, at what level of, say, security or at what level of ranking would such a facility join your existing financings?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [20]

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Okay. So I will start with the first question. The main factor that is going to drive sales this year is availability of sites. So many of the construction site of our customers are either have been or either are impacted by lockdown restrictions from different governments all over the world. So this combination, with the availability of components because our factories were as well impacted or are still impacted by lockdowns, so we are going to have less capacity in a calendar year. And eventually, some of the projects that we are building for our customers are impacted by lockdown measures, so we can -- we might be the case that we cannot install those projects in the year. So it's a combination of both: sites available to work and components available due to lockdown restrictions. And working, as we mentioned, very collaboratively with the customers to reopen the sites. Regarding liquidity...

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [21]

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Now first about the facility. Again, here also, I don't want to anticipate structural discussions that are certainly being led by the respective institutions. Also here, I think we wanted to inform you on time, but the structural features are not yet being finally discussed here.

And the question around liquidity, can you help me here again? What was it exactly?

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Wolfgang Felix, Sarria Asset Management - Founder [22]

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I was just eyeballing it. I haven't really done the math yet, around EUR 600 million? Is that correct?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [23]

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Liquidity ...

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Wolfgang Felix, Sarria Asset Management - Founder [24]

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(inaudible) cash plus about EUR 200 million available under the RCF, is that correct?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [25]

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No, we don't have -- we don't have, in that sense, a general RCF.

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Wolfgang Felix, Sarria Asset Management - Founder [26]

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Okay. Under the -- yes, that's right. So you would go with EUR 430 million of cash?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [27]

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Yes.

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Operator [28]

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(Operator Instructions) And the next question is from Rajesh Singla, Societe Generale.

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Rajesh Kumar Singla, Societe Generale Cross Asset Research - Equity Analyst [29]

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I just wanted to have your thoughts on the flexibility of your order book, like how much flexible your order book is? I mean to say like the COVID-19 situation is quite fluid and quite different in various regions in the world, so is it possible to bring forward some projects where the things are improving and maybe push back some projects where things might remain challenging in the near future? So are you looking at these kind of options to basically bring forward some projects from next year to this year? Can we do that? Or it's not possible at all?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [30]

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I think we have, in the context of the COVID task force, we are continuously replanning the operations with the company. I think previously we were using a criteria more, optimizing the slots. Now we are more towards optimizing cash flow, even could be some more inconvenience. So of course, there is possibilities, but it's not very likely that we will do so because customers are not willing to -- I mean are not willing to advance payments. And usually, they procure the turbines with you with certain schedule. They do their balance of plan. They do their interconnection. So they have limited flexibility to advance the project as a whole. And if they have limited flexibility to advance the project as a whole, they do not require early deliveries of the turbines. But so far, what we can tell you is that customers are not discussing to, generally speaking, to postpone the projects, to delay projects or -- no, they want to restart the sites, the projects that are affected by COVID. They are working with us to restart the sites as soon as possible. And to do the project with minimum impacts in the contractual schedule.

And advancing projects for the next year, I mean, we don't have capacity. I mean, we are almost already sold for the year. So there is no -- the only possibility is one project gets delayed further, substitute with our 2021 project. That could be, but at this moment, we are not considering that.

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Rajesh Kumar Singla, Societe Generale Cross Asset Research - Equity Analyst [31]

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My second question would be on your Delta4000 platform. So earlier, you mentioned that the Delta4000 platform could generate 300 to 500 basis point additional margin or they have better margin than your previous platform. So given the challenging supply chain situation, do you see that potential getting changed at least for this year, maybe like 100 basis point hit or 200 basis point hit on Delta4000 profitability because of challenging supply chain?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [32]

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No. With the early indicators that we have, I think we had the first impacts in China, limited impact in Q1, then the things in China get resolved, back in operations, so we are producing components there without -- as we speak, in China, without impacts in cost. Delta4000, we are ramping up in Spain, in Mexico, in Brazil to be quantified -- to be quantify the extra cost that we might need to carry due to this interruption. And as we speak, even Mexico is in lockdown. So I cannot be precise enough to give you a figure. But I can give you a figure is that in a post-COVID scenario, the cost shouldn't change. So we don't have any early indicator that will -- could tell us that we might deteriorate the profitability of the backlog in 2021. And as Patxi mentioned and as I mentioned, the backlog of Delta4000 is with better quality. And with the information we have today, we plan to deliver this backlog in 2021 without extra cost at this moment. I mean, of course, if factories -- if Mexico doesn't reopen in the second half, we need to have a different discussion, but that's not in our plans. So the P&L impact is going to be with the information we have in hand for 2019, and the inventory buildup as well, because if you loses blades, but maybe you have nacelles and towers, this creates an imbalance, a temporary imbalance in the -- your inventory, that means it's not convertible into cash. But this is, again, a temporary thing. When things go back to normal, you, by definition, restart, replanning the company in order to match and to minimize working capital.

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Operator [33]

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And the next question is from George Featherstone, Bank of America.

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George Featherstone, BofA Merrill Lynch, Research Division - Research Analyst & Associate [34]

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Could you please give some color on what you are seeing in terms of the commercial activity in the U.S.? And was there a specific reason behind the 0 turbine order intake in Q1 in North America?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [35]

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Patxi.

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Patxi Landa, Nordex SE - Chief Sales Officer & Member of Management Board [36]

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Yes, just a pure timing effect. In fact, probably in Q2, it's been a bit lower relative to our expectations due to -- that we expect the majority of the activity in the U.S. coming in Q3. But that is a pure -- as you know, we are very strict in recognizing orders, and they need to fulfill a number of requirements, and they will fulfill those during Q3 and not Q2. So not anything particular with respect to market dynamics. We continue to see a significant level of activity in the U.S. and remains to be seen as well both for '20 and '21 if there is going to be any regulatory -- meaningful regulatory changes. It's probably not prudent to expect significant movements due to this administration not being very supportive of wind energy. But even with the current circumstances and in the current scenario, we continue to see significant levels of activity for 2020 and '21.

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Felix Zander, Nordex SE - Head of IR [37]

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Okay. So I see that we have obviously answered all questions. And so thank you very much for the discussion and for your participation. And now I would like to take the opportunity to hand over to our CEO, José Luis, for his final remarks. Thank you.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [38]

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Thank you very much, Felix. So as a key takeaway of our session, we would like to reinforce that we see that the order intake momentum remains strong, with increased share of the new Delta products, which means more order intake and with better margins. Second, we haven't talked much about Service, but Service is, due to the organic growth, is a very sustainable business, generating steady cash flows. We mentioned the reasons, we discussed the reasons why the guidance for financial year was withdraw, because COVID impacting temporary our business. And we discussed as well that the overall demand for green energy will further grow, supporting the recovery of the economy post COVID-19. So with this, again, thank you very much for your time, for your participation, for your questions and wish you a wonderful day. Thank you very much.

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Felix Zander, Nordex SE - Head of IR [39]

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Thank you. Bye-bye.

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

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Thank you. Bye-bye.

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Operator [41]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.