Nordex SE

Christoph Burkhard - CFO and Member of Management Board Felix Losada - IR José Luis Blanco Diéguez - Chairman of Management Board & CEO

Arash Roshan Zamir - Warburg Research Sebastian Growe - Commerzbank

Thank you very much. Good afternoon, ladies and gentlemen.

This is Christoph Burkhard. I'm the CFO of Nordex.

And the reason why I start and not José Luis, who will now immediately start, is that before we started with our presentation I would like to inform you that we have taken another step to further improve the quality of our Investor Relations communications. And therefore I'm glad to introduce Felix Losada, our new Head of IR who joined Nordex on August 1st.

Felix is as very distinguished IR professional with more than 16 years of professional IR experience and a winner of various IR awards. And with that, Felix, please, the floor is yours for some words about you.

Thank you very much, Christoph, for the warm welcome. Yes, I'm looking very to the task which is lying ahead of me and my team.

I am proud to have a good team here with Tobias Vossberg and Ralf Peters in place. And, yes, so I'm not very experienced since this is only my third day as of today, but I'm honored to say I would like to welcome you on behalf of Nordex to at least my first conference call regarding our H1 figures.

Our CEO, José Luis Blanco; and our CFO, Christoph Burkhard will guide you through our presentation, providing you with additional information about the market and the business development. Afterwards, as a special step, as of today we will answer some questions of David Vos, which he has forwarded us this forenoon.

Afterwards, as the operator said, we will open the Q&A session for you. And 1 little remark and we would ask you to focus on 3 questions so that everybody has a chance to ask her or his questions.

And now I'm glad to hand over to you, José Luis. And, yes, please go ahead, the floor is yours.

Thank you, Felix. Thank you, Christoph.

Thank you, ladies and gentlemen to all of you for participating in this call. I will guide you first through the agenda and from there we will split between Christoph and myself.

First, I'm going to introduce our view on the company, the situation in market, orders, and installations. My colleague Christoph is going to share with you the financials of the company as well as progress in the 30-by-18 program.

I will take it from there to share with you the product roadmap in the context of company roadmap to finalize with the outlook for the year and open the floor for Q&A. So with this, let's start.

And that's first half of the year. As you can see here, order intake of €905 million, thereof €572 million in the second quarter, slightly acceleration.

But for the performance of the first quarter is still below the levels of last year and we will elaborate a little bit on that. Regarding revenues, €1.5 billion, good tracker for the outlook of the year.

Acceleration as well versus the first quarter. Second quarter is €853 million.

EBITDA margin of 7.8%, and on increasing the service business, which as you will see, is very important for the group. In summary, Nordex is on track to deliver the commitments for the year.

We will move to the next slide. I would like to take this opportunity to review with you where we are versus where we wanted to be in the key actions in the priorities for the company that were somehow laid down in front of you 3 months ago.

First priority for us at that time was reorganizing the company in order to be more customer oriented, agile, and with clear P&L responsibilities. And in that regard, the 3 divisions, the European division, the International division, and North America division are live and are running.

So second half of the year we will organize ourselves with 3 divisions in the 3 new geographies. Second priority for us at that time was adapting the production capacity to the demand.

As you will see later, there is a shift in demand which triggers adaptation in the production capacity to better serve the demand. And we need to grow in some geographies and we need to adapt in other geographies.

The situation in this point is that we are progressing according to plan, good negotiations with the workers representatives and this is handled in a proper way. Third, important point that we mentioned three months ago was adapting the structural cost of the company.

It means reducing the structural cost of the company. So today on this specific chapter that Christoph is going to inform and develop there.

But I will summarize that savings have been identified, implementation is ongoing. Fourth important point for us was optimize the supply chain and more increasing the share in lead competitive countries, mainly Asia.

And in this regard, I'm glad to mention that we are about to produce the first blades in India for global consumption as well as for Indian consumption, and we are restarting the nacelle plant in India for global consumption as well as for Indian consumption. So a increase in lead competitive countries supply chain is going to be a trend going forward.

Another important point that we mentioned in the first quarter was leveraging in our existing footprint. And as you will see later, the share of installations and the share of order intake precisely reflects the new situation of the company with a broader and more -- even and equal distribution in the customer landscape and in the supply chain landscape.

If we move to the next slide, situation in markets, the headline here is that the fundamentals of the business medium to long-term are very robust based on our ability to lower cost of energy substantially. But we are facing some shorter adaptations in several markets to a new system.

In general, in Europe, the general trend is that Europe is transitioning towards now auction-based system, and in many countries very much happening the same. In the adaptation to a new system usually different stakeholders take some time to adapt and this is triggering some shorter uncertainty in the order intake.

But all-in-all, the dynamics is always the same, it's drop in prices but recovery in medium terms in volume. And this is happening in, as you very well know, in Germany as of today and as well as in other countries like Turkey that is transitioning as well to an auction-based market mechanism.

Spain is recovering and what was one of the important markets in Europe is we plan to recover gigawatt-scale market, and as you know over the 4 gigawatts of wind were awarded in recent auctions. And as you know as well, we have a very important manufacturing supply chain for plain Spain that we plan to harvest some of those opportunities.

In America, as you will see later, is gaining weight in our portfolio of installations and in our portfolio of order intake. U.S.

is mainly driven by current PTC cycle, and the dynamic here is that customers are shifting the Safe Harbor projects to outer years. As a good example here ,and we can elaborate later, most of the volume that we are executing this year in the U.S.

is not even used in safe Harbor equipment. So it's a clear explanation how the customers is postponing the investment decisions to the later years of the PTC cycle.

In other American countries we expect tenders in the second half of the year in Mexico, Argentina, and Chile. And it's still unclear if Brazil is going to issue a new auction this year.

Brazil we are executing a big project. That is going to keep us busy this year and a good part of next year.

So we are well-positioned there for somehow dealing with the uncertainty. Nevertheless, it's an important market for the industry and for us an important player in Brazil.

So hopefully it will happen this year or in the beginning of next year. Rest of the world, same dynamic, transition to auction systems.

And this is the case in India where we see a substantial short-term drop in volume. But again same dynamic.

Long term we expect the market to recover and to come back at temporary downturn on volume. So overall the dynamic is that wind energy is keeping the pace and in the cost of energy reduction market movement towards auction system and markets take some time to readapt.

If we go down now to our reality in our order intake for the first half year was €905 million excluding service. We expect backend loaded order intake for the year, but it's true that the evolution is not as good as last year and not as good as we like to be, although we are in the last inch to secure volume in several relevant projects.

So we expect second half of the year to recover. If we analyze the order intake by regions, we see here a clear dynamic.

There is a drop in volume and a more even distribution between geography. Americas, between North America and Latin America, accounts for more than 50%, 4% rest of the world, mainly in this case Australia where we are again doing business, and in Europe despite the drop, still accounting for 43% of the order intake.

Service segment, service segment is very important for our predictability in revenues and profits, is of 24%, and versus half 1 2016 it's an increase of 11% of the total sales in H1 2017. And on top of the organic growth in the Nordex platform the figures here show a contribution of Acciona Windpower that was not in the -- that was just in 1 quarter in the 2016 numbers.

We'll review the operational performance of the company. Order backlog for turbine is 1 down to €1.7 billion and order backlog for service went up 63% to €1.8 billion.

The turbine order backlog is very much a correlation with the order intake. So Europe accounts for €783 million out of the order backlog.

North America very important to mention gets €180 million. But as you know and as we informed last year, Safe Harbor equipment will trigger future orders there.

And Latin America substantial €622 million. Rest of the world accounting for €157 million.

Service order backlog increased Q2 by around €91 million, and we have in our portfolio more than 14 gigawatts under service. Translating the order intake and the commitments into operational performance, what we saw in the first half was I would say a stable level of installations, 1.1 gigawatt, and a substantial increase in production.

And there is multiple reasons for that that we will elaborate because, as you see, most of the -- there is a substantial increase in orders coming from the Americas, and due to lead time issues those orders are produced in Europe. So we need to produce at higher level than the current installation in order to match the demand.

In any case installations, 401 turbines in 11 countries, 63% in Europe, 8% rest of the world, 12% LatAM, 17% North America. And the activity to produce the market needs, we see a substantial increase, 535 units.

Out of those 320 in Europe, close to 200 in Spain, ramping up in Brazil for the demand of this big project that we are delivering, and ramping up in India for global consumption as well as in the expectation of future orders in India. We are preparing and we are producing now to average to meet the higher demand in installation in the second half.

And the same trend applies for blades, with a substantial increase in both internal plants, Spain and Germany as well as in our financial contractor for blades. With this I will hand over to Christoph to review the financial performance of the company.

Thank you very much José Luis. And starting with P&L, you see that with sales of €1.5 billion in the first half of the year, our Q2 number of about €850 million exceeded our Q1 number of €648 million by about €202 million.

And as for the previous quarter, the current performance is in line with our expectation. With €117 million EBITDA during the first half year we achieved margin of 7.8%, and this being at the lower end of the guidance.

The PPA related depreciation amounted to €24.4 million, reflecting an increase here compared to financial year '16, which is also in line with our planning. And by yearend we do expect the total PPA depreciation between €55 million and €60 million, and the tax rate currently stands basically unchanged compared to Q1 at approximately 35% and is expected to slightly decrease again towards yearend.

Now going to the balance sheet, the solid structure of our balance sheet remains unchanged compared to year-end 2016. The equity ratio slightly increased to a decent 33%.

We are looking at the end of first half year at a net debt position of €233 million, and that is a result from cash and cash equivalents of €438 million. And then, of course, you deduct the bank borrowings and bonds in the amount of €671 million, then you come to the net debt of €233 million.

The €671 million bank borrowings and bonds they consist of long-term borrowings in our Schuldschein, EIB loan and local facilities. With this I would like now to comment on our working capital development.

Working capital increased during the first half year from starting point of 4.1% to 8.4% at Q1 to 9.8% at the end of Q2. And reduced prepayments and high inventory levels are the main drivers behind this development.

I have announced at our Q1 call in May the peak level to be reached at the end of the first half year. That has happened now.

And we will see a decrease of that level throughout the second half of the year back to the guided level between 5% and 10% at yearend. And this development will be supported then by higher prepayments in Q3 and Q4 as well as by first contributions from our internal working capital optimization program, which I have already mentioned earlier this year.

The program is very well on track, and I'm confident that with our new divisional setup it will develop the expected momentum still in this calendar year. All operational levers, namely order to cash for accounts receivable, procure to pay for the accounts payable, and forecast to fulfill for inventories are tackled in a very systematic and structured way by all the new divisional owners.

With this to our cash flow statement. Now looking at our cash flow statement, we do see changes, of course, reflect a few changes in working capital and from investing activities.

The changes in working capital lead to a cash flow from operating activities of minus €160 million. And deducting the cash flow of €75 million for investing activities leads to free cash flow of minus €236 million.

Again, we will see this number improving in the course of the second half of the year hand in hand with the expected working capital improvements. And so we have just talked now about the working capital changes.

So let's move to the investment activities. Our total investment spend of €70 million during the first 6 months is as planned.

It is a little below the 50% as per guidance, again as planned. And the investments are largely driven by various actions supporting our new products and COE reduction in the supply chain.

By that have a look at our capital structure. The chart over the previous 12 months indicates an unchanged solidity of our structure.

And the increase of the leverage in Q2 2017 simply reflect the mentioned increase in net debt. And we will see the chart coming down again during the second half of the year, in line with the expected working capital development.

And further on all our covenants do have ample headroom. By this, I would like to give you a brief update on our 30-by-18 structure cost reduction program which we have announced earlier this year.

In May, we said that the identification phase of the measures was completed. In the meantime, we could already firm up 80% of the identified measures.

And we do expect further progress in that field. As José Luis mentioned already, we are in ongoing discussions with our works council, and we will disclose the total number of the envisaged key reductions in due course, and we will combine this announcement of the planned reductions with an estimation of the overall cost related to the 30-by-18 program.

We have already asked for that. This is a totally legitimate question, and we believe it makes sense to disclose that in one shot and we don't have to speculate and we'll do that very soon.

But the least we are confident to reach at least the announced €30 million cost reduction amount being realized in 2018 And with this, José Luis I'm handing back over to you.

So I'm going to ask you to review evolutions in the recent developments. Prior to that, I want to put the product portfolio development in the context and in the roadmap for the company development.

As you remember, we summarized in Q1, our midterm plan that there are 2 shorter activities; adapting capacity to the demand. We mentioned improving the efficiency 30-by-18.

We already mentioned ongoing efforts in increasing leverage on suppliers and optimizing lead competitive countries. We mentioned and we said at that time that despite the uncertainties in the market we are investing a substantial amount of the EBITDA generated in products and technology and supply chain development in order to achieve high-single digit cost of energy reduction every year for the next 3 years.

With this, we plan to support increase in market share and subsequently increase in profitability as a result. Product is a substantial part of this midterm initiative for the company and is as well the major CapEx utilization.

I want to share with you where we are. We are as you know about to launch 2 new products in the 2 segments that we operate.

First, and let's start with land-constrained markets mainly, but not exclusively, in Europe. We are in good track with the new machine that is under development entering the 140 plus rotor segment with a bigger rating and a bigger nameplate than the best product that we have currently in the portfolio.

This turbine is targeting more than 20% annual energy production per location and is targeting as well double-digit cost of energy reduction, of course, the best product that we currently have in the product portfolio for this segment. We planned a public presentation of this turbine at the Husum Wind Fair in September '17, and I will say that with this product that we are already marketing, we are very much in line with recent announcement from our competitors to the relevant competitors that have recently announced machines similar to this.

industries. We plan to prototype this turbine in approximately 1 year.

We are starting selling of this machine we expect some units in 2018, a ramp up in 2019, and full listing this new product in 2020.Regarding products for grid-constrained markets, we are planning as well in do a sales release in September about a new rotor for low-wind sites to keep the cost of energy reduction trend that is required to operating worldwide and as well in low-wind site markets. This product is especially thought to be competitive for the phase in India but not just in India; Spain, Mexico, and many other countries.

With this product portfolio evolution and with this CapEx strategy to invest in products that help us to keep lowering cost of energy in recent year-on-year, and we think we are on track to recover market share in 2019 and especially 2020 when those turbines are going to be there in biggest portfolio of sales. Okay.

So with this I will just like to conclude that with the information that we have today guidance for 2016 is confirmed. We plan sales of €3.1 billion to €3.3 billion, EBITDA margin 7.8% to 8.2%, excluding of course the one-off associated cost on the 30-by-18 program.

Working capital we plan to go back to the range of 5% to 7%. A big CapEx of €150 million on track, mainly in developing those products that are going to help us to recover or gain market share, especially in 2020.

And as we mentioned in Q1, we expect to publish the guidance for 2018 in due course in the normal calendar year. So with this we open the room for Q&A.

So Felix.

As I said in the beginning of this call, I will start with some questions we have received ahead and I will read them for you. First one, India, you have said previously that you expect to convert 177 megawatt framework contract to orders and revenue in 2017.

In light of Discom's refusal to sign new PPAs, do you stand by this expectation? This is the first one.

I think I'll go through all the questions and then we follow with the answers. South Africa, Eskom recently said it is no longer willing to admit farms to the grid if they have an ISO higher than €51 per megawatt hour.

Can you confirm that the pipeline you have in the country meets this criteria? Third question, turbine backlog is down another 10% Q-on-Q.

Pre-payments are down almost 50%, yet nacelles assembly and blade production are up 18% and 30%, respectively. How do we reconcile the discrepancy in these activity indicators?

And now the last question is regarding the United States. What does the order pipeline look like for H2 in 2017?

And if you book these orders, when will the turbines be commissioned? An example, in 2018 or only beyond?

So these are the questions and I would like to ask you.

First question, India. Yes, to the best information that we have, we still expect that this megawatts are going to materialize.

And here is how the system works. We signed power purchase agreement with the state-owned utility companies in Karnataka and the process requires that those PPAs are rectified by the Karnataka Electricity Regulatory Authority.

And the information that we received is that the Karnataka Electricity Regulatory Authority plans to ratify all the PPAs signed up-to-date with state-owned utilities. So if that is happening, that is 1- or 2-year notice to proceed for final contract execution and notice to proceed for this volume.

Regarding the question about South Africa, first of all, all of our existing customers that plan to execute project with us coming out of Round 4 haven't mentioned any strategic changes about South Africa first or that South Africa government was asking for renegotiation of the PPAs. So what we are waiting here is for financial close, and we don't have information when this financial close is going to happen.

So when this financial close happens, it's going to teach us well notice to proceed for future volume for us in South Africa. Timing is uncertain.

Changing commitment with a country for non-customers? No.

PPA renegotiation, we don't have that information. Going forward, and being specific about this, if our projects can't deliver €51 per megawatt hour, I mean this is a very - it's quite a broad question.

I mean in many areas of the world we are able to deliver PPAs lower than that, but again it's a combination of wind resource, with grid development, with local content requirements, with cost of the debt in South Africa, and with equity return expected in South Africa, which is very much related with the performance of the country. And very important as well, timing is crucial here.

So depending when we are talking about and the conditions in those different levers we might be able to deliver technology that help our customers to meet at those levers going forward. So that nothing look out of the range to us.

But again, I don't want to over-commit because it's quite a broad statement and many factors play overall in building one price. Third question was regarding combined backlog, is down quarter-on-quarter and pre-payments down 50%, nacelle assembly and blade production.

How do we reconcile the discrepancy in those activity indicator? I think the general statement here is that every market and every project and every customer has different projects with different payment profiles.

And the trends that we are seeing here is that there is substantially less volume in Europe and a substantial increase of volume in the Americas. And just assuming that the payment conditions of those projects and customers are the same, just the fact of shipping components either from India or from Spain or from Germany overseas, it takes 6 to 8 weeks of extra lead time, that affect as well the working capital.

So, all-in-all, we are producing the components as per the needs of our commitments with the contracts and with the customers in the different geographies. We are not producing.

But this needs to be taken into our effect to do the reconciliation. Last question about the U.S., what does the order pipeline looks like for H2 2017?

I would say in general and specifically in the U.S. very small part of the order intake expected in H2 2017 is still to support the revenue of the group in this year, very small portion.

Low-double digit or high-single digit, I don't remember, but that's roundabout the number. The majority of the risk is to support 2018 revenue and some small portion as well is planned for 2019.

So I hope this answers questions from David.

Yes. José Luis, thank you very much.

And I think it was very good answers and very much in detail. And now I would like to hand over to the operator to open the Q&A for the other colleagues we have in the line right now.

Please go ahead. Thank you very much.

I have three, if I may. And I will ask them one at a time.

And the first one on your service business. Obviously, you managed to grow your service business quite nicely now in Q2.

However, your EBIT margin dropped quite dramatically from I think around 15% last year to now 6% in Q2, and it looks like due to a surge in cost of materials. I was wondering if you could elaborate on the underlying reasons for the drop in profitability in your service business.

And that will be my fist question, please.

I'm taking that question. Christoph here.

You have to of course also analyzed this development, and for us we look predominantly at 3 reasons for the drop and to a certain extent we believe that this is temporary phenomenon. The first cause for it is that overall we do see an increased AWP share with a lower service margin.

So this is kind of a sustaining effect that you see in this quarter. The second effect that kicks in is that due to the increased overall service portion within our total sales number it is that our sales revenues do attract more overhead for service.

And so you see a higher overhead rate here. And we want to tackle that, of course, also in the context of our product initiatives reducing overall overheads and structural costs.

So we do expect to see improvements here. However, yes, admittedly this burdens our service margin as you have just described.

The last effect that we have convinced is there is a pretty significant special effect sitting in this number. It has to do with Brazil, taken in significant up from Brazil.

You know that we are engaged in Brazil. And specifics in Brazil is that you have a very low service margin in year 1 since due to the local conditions here with regards to currency.

Customers trying to maximize the CapEx portion and therefore you see in year 1 quite an unfavorable service margin that is improving over time. I hope that this gives some explanation.

Then the second one would be on the German wind market, especially on the German onshore auction system. I mean obviously the result of the first German onshore auction has been rather disappointing for you and also for your peers due to the high number of winning bids from so-called community wind farm projects.

And so what are your expectations for the remaining 2 onshore auctions in Germany which are expected to take place in the second half of this year. Do you expect a similar outcome in terms of a high proportion of community wind farm projects as in this first auction round and what would this imply for 2018?

That's a very good question. The materialization of first auction in orders is uncertain because there are 54 months to commission those projects and those projects are now in the phase of getting building permits and we are negotiating with some of the customers, but there is no pressure to bring those projects in line.

Second auction, the rules of the game are the same. The proportion of community projects versus already permit projects we still don't know because it is going to depend very much on the order backlog of community projects bidding.

But result might be disappointing as well from the timing perspective. Then going forward the market is structured in such a way that, let's say, roundabout half of the auctions are going to require building permits and half of the auctions still don't require building permits.

In any case, what this is going to trigger is that from the industry in general and for us as members of the industry, and as Germany is very important for us, shorter uncertainty in the order intake in Germany, that needs to be stabilized in the future. And we want as well to put this into the context of the product development and the availability of new turbines for Germany to keep the pace of cost of energy reduction.

So that's why we see volatility in 2018 and eventually 2019 and in 2020. That is where the system is, once you start the 54-month cycle then the market becomes to a stable mode again.

There is going to be no doubt, we don't have any doubt that given our presence in Germany and given our investment in the right products, we need to have a substantial share in the future market in Germany but it's true. It's shorter, it's uncertainty.

And the last one then on the U.S. market.

You already elaborated a little bit on the U.S. market.

However, I was wondering, you secured 4 Safe Harbor contracts last year and you managed to convert 1 of those 4 into a firm contract. And I was wondering is there any risk that the 3 remaining contracts might not get converted into a firm contract?

From an economic point of view, is there a real risk that one of those customers will decide to go ahead with a different turbine manufacturer? And also with respect to 2018, did I understand you correctly that you're no longer assuming a market share in the U.S.

market of roughly 10%?

Yes. Let me elaborate a little bit here.

U.S., we are very confident of our competitive position there. This year we are going to be installing there roundabout 800 megawatts and that could be roundabout 10% market share if we accept the standard numbers that the different agencies are considering to us.

Out of this 800 megawatts that we are installing this year, just 1 project consumes Safe Harbor equipment. The remaining Safe Harbor equipment, as of today, we don't see a risk that those commitments from our customers will land in different turbine acquisition from other competitors.

It's open and it's always a risk, but we think that we have a competitive offering and our customers are progressing well ahead in the development and acquisition of projects. Yes, the dynamic is that they are postponing the decisions.

Next year we don't have yet the numbers in the -- for the U.S., but we expect very much continuity in - that shows these numbers could be a little bit more but in -- or a little bit less depending one of other project, but there is no reason why we should expect substantial difference there versus what we are doing this year.

So first one of a set of questions is related to the order backlog. I would like to answer and comment on the gross margin that you have in the order backlog and how this compare to the first half 2017 gross margin, which was pretty decent?

Or put differently, if you're comfortable that, yes, you will be able to deliver on the required COE reductions that go along with obviously lower ASPs in the marketplace? That's the first one.

The second one is, I think it's a follow-up to David's question on the order backlog. If you can share with us the overall, kind of, execution windows for the order backlog on the projects, that's more than €1.7 billion that you reported at the end of June.

I would just be curious to hear how much of that is to be executed in 2017 and how much of that is specifically going into the year 2018? And then on the pipeline, if I may come back to this one.

You made the comment obviously that you expect the orders to be rather backend loaded in this year and that you are only an inch away, I think that was your wording, from securing some larger projects. So what I would like to get from your end is to have an indication at least how confident you are that you will have a book-to-bill ratio for the second half of the year 2017 that is equal or above 1x and how confident you are to really get there?

Okay. So if you could repeat the first question?

What I got it was regarding keeping the pace with levelized cost of energy. And the second question, could you please repeat the second question, Sebastian?

The question was simply on the execution windows within the order backlog, i.e. how much of the €1.7 billion applies to 2017, how much to 2018, to just get sort of an idea where we stand here in terms of coverage for next year.

Okay. So first regarding COE.

I mean, how much of the COE could translate into margin improvement. This as well remains to be seen.

This is going to depend mainly about market price evolution. What we are very confident is that due to the roadmap we are following that is very much based and supported with product portfolio enhancement and investment, and supply chain reshaping towards lead competitive countries.

We are committed to deliver high single digit cost of energy reduction year-on-year for the next 2 to 3 years. Again, how much of this is going to translate into margin improvements and how much of this needs to be for the customers, we will try of course to get as much as we can to margin improvements, but it's a market dynamic.

If I may, just quickly come in at this point. So, overall, you would say at least all the measures that you have in mind be it on the COE side, be it on the OpEx side at the end of the day it's at least your ambition to maintain the current margin level of, say, around 8% for the EBITDA, that's right, yes?

What we are saying is that with the current measures that we are having in place our offering is going to reduce the cost of energy by high single digit. How much of this cost of energy improvement is going to translate in margin improving or margin stabilization is going to depend very much on pricing pressure, that is uncertain to us at this moment in time.

And that's precisely due to this uncertainty in different markets. And due to this uncertainty and this volatility we don't want to signal anything until we have more clarity and we feel more comfortable to inform you in due time in early next year about how '18 might look like.

But from an operational perspective, we are very confident that leverage in the supply chain in Asia and investing heavily in product enhancement, our offering is going to improve substantially, the cost of energy of our offering. And then we need to live in the market and let's see how much we can keep.

Second question was regarding the execution out of our €1.7 billion orders backlog. We don't see risks in terms of margin deterioration in this order backlog.

Roundabout we have half of the year to go. So it means that we need to stay little close to €1.5 billion the remaining of the year or €1.5 billion including projects and service.

And €1.5 billion to go between project and service. I will say that a big portion is supported with the order backlog.

But we still need to secure a small portion, roundabout high single digit, low double digit in proportion that orders that need to materialize shortly to support the revenue of the year. Regarding the book-to-bill, you need to allow - I mean not to signal anything in that aspect because there are high volatility.

And a good example is India where we are waiting for Karnataka authorities to ratify their PPAs. How long that is going to happen, we don't know.

We are waiting as well for South Africa government for Eskom to call different customers for financial close into different projects that they are ready to award us. So that's going to be very much, I would say, subject to political development to a certain extent.

So that's what I can share with you, Sebastian.

Okay. Put it differently, you would at least think that the current run rate of, say, almost €600 million in the quarter 2 that this is sustainable, at least, if you were to x out then South Africa, if you were to x out India, so the, say, high-uncertainty countries?

I mean, we are confident in the guidance for the year in the sales side of the guidance. Although still some contracts to materialize we are confident and that's why we confirm the guidance.

Where we have more uncertainties is regarding how the volume is going to be in 2018, and that's very much depend of the numbers of deals that we are able to land in the second half of the year.

Okay. Thank you very much.

Also a very good detailed Q&A. And, yes, so before we leave you in your summer holidays it's a pleasure for me to hand over to José Luis once again for his final remarks, and I say thank you from our side and, José Luis, please, for your final remarks.

Thank you very much, Felix. Again, thank you very much for your questions and for your participation.

Final remarks for me is that we are confident to deliver the guidance for the year. So the guidance is confirmed.

And we have a clear roadmap that support high single-digit COE reduction for the next year. We see uncertainties in many different markets happening at the same time, but we are very confident about the 2020 Vision for the company that the investments that we are making in supply chain and in products has to harvest, give us a possibility to harvest results in the medium-term.

So they are confirm, uncertainty '18 and '19, Germany and many other markets in a good roadmap to recover growth for 2020. Thank you very much.

Thank you.

Thank you. This concludes our call for today.

Please, operator, bye.