Nordex SE

Felix Zander – Head-Investor Relations José Luis Blanco – Chief Executive Officer Christoph Burkhard – Chief Financial Officer Patxi Landa – Chief Sales Officer

Sebastian Growe – Commerzbank Arash Roshan Zamir – Warburg Research Sean McLoughlin – HSBC Pinaki Das – Bank of America Merrill Lynch Haiyan Ding – ODDO BHF Senan Kiran – Muzinich

Thank you very much, and good afternoon, ladies and gentlemen. I would like to welcome you on behalf of Nordex to our call for the first quarter 2018.

In the room are our members of the board with me, our CEO, José Luis Blanco; our CFO, Christoph Burkhard; and our CSO, Patxi Landa. They will give you a short presentation sharing the latest developments of Nordex, the markets as well as the financials review.

Afterwards, there'll be enough time for Q&A. However, please limit your questions up to three.

Thank you very much for your understanding. And now it's a pleasure to hand over to José Luis.

And please go ahead.

Thank you very much, Felix. I'm going to repeat the good afternoon from Hamburg on behalf of my management board colleagues Christoph and Patxi here with me.

As Felix went through the agenda, let's go to the first executive summary from my side. So summarizing, we think that the first quarter, we are executing as per the plan, as per the guidance.

So the results of the third quarter sales are EUR487.9 million, a substantial drop. That was the EUR648 million in 2017.

As expected, EBITDA margin was 4.1%, again lower than the 7.9% in Q1 2017. Again, nothing new, as expected.

Working capital, good development, 4.8% versus 8.4% in 2017 and we will go more into detail in Christoph's presentation. Very important to mention, around one gigawatt of new orders in Q1.

That give us the visibility for the year to comply the guidance for the year and is again a solid start. With this, we are confident to confirm the guidance for 2018 previously as we communicated to you.

Recent developments that are important to mention because of the relevance for the company in terms of markets. We finally received a notice to proceed for one of the contracts in South Africa that were pending of activation.

We expect more to come from South Africa as we will hear later on from Patxi. And in line with product on supply chain transformation, we are keep developing and enhancing our product portfolio.

In this quarter what is new for you is high wind version of previously announced Delta4000, N133/4.8, which is planned to bring business for the company with high wind areas. We were – that was part of the plan, that was not previously communicated for competitive reasons.

So with these, I am handing over to Christoph and I will get – I'm handing over to Patxi, sorry, to guide you to markets, orders and installations, and I will get back to you in the latest part of the presentation.

Thank you, José Luis. Good afternoon, ladies and gentlemen.

I will lead you through the markets, orders and installations part of the presentation. We have a view from the markets perspective not to be similar to the one we shared with you barely 1.5 months ago in the full year results call.

We do still see stable volumes in Europe with the transition into auctions almost completed, France being one of the last main markets in Europe completing the transition. We do see significant activity in Spain, arising from the auctions, the large volume of auctions that were awarded last year, activity that is happening as we speak.

Turkey, a bit in a crossroads, with old FIT indirect projects, rushing to get built prior to 2020, not to lose value, as well as new auction winners figuring out how to make their projects viable in the context of the market. We expect Germany to regain normalized activity 2020 onwards, as you may be aware political debate on potential amendment of the EEG with respect to building permit requirements and additional volumes to be auctioned.

We will potentially see the result of these over the next quarters. In the Americas, we do see growth.

The U.S. is in full swing in the PTC cycle.

However, we may slightly see slightly less activity in 2018 than anticipated. It's going to be still a very good year, but potentially slightly less than what we have anticipated some time ago, with some spillover effect of projects into 2019, 2020 and even 2021 where at 80% PTC projects may eventually happen.

So we do see a softening effect of the tail-end of the PTC cycle. Brazil is back.

A significant capacity got awarded last year. We have a very strong position and presence in the market, and we do expect a good news coming out of the market in the rest of the year.

Same applies to the main market in the Americas like Mexico, Argentina and Canada. In the rest of the world.

India will award very significant volumes, both at federal and state level, over the next couple of years. And the highlight, as Jose Luis was anticipating, highlight with respect to the last quarter's.

Finally, South Africa round four projects signed previously with Eskom. So they are now through financial close, as some of the projects have reached that milestone, and therefore, have already been considered as normal.

Some others, we expect to become new orders in the next couple of quarters. With respect to order intake, we have a very solid start to the year, with over a million worth of new turbine orders, which translated in EUR820 million with an ASP of EUR1.81 per megawatt in the quarter.

Very evenly distributed geographically, almost 50:50 into Europe and Americas, with France, Sweden, Turkey, Mexico, the U.S. and Chile being the main markets in the quarter.

So the sales rose by 8% to EUR78.8 million, which represents a higher than usual share of group sales as a result of turbine sales decrease in the quarter. EBIT margin was 17.3% and average availability over 97.6%.

Significant, increase in order backlog quarter-on-quarter on a turbine perspective. The combined order backlog stood at EUR4.6 billion.

Turbine order backlog rose from EUR1.98 billion to EUR2.71 billion. To effect, one, business-driven as a result of the stronger order intake that increased the backlog EUR374 million with respect to year-end 2017 as well as IFRS driven effect that increased EUR666 million.

From a service perspective, order backlog rose 9% to EUR1.93 billion. We saw growth in installations.

Significant growth, explained largely by the Latin America activity as we are delivering Argentinian, Mexican and Peruvian projects, while Europe remains stable. Not to forget Australia, where we are delivering our first project in many years, as we're strongly back into that market.

From our production perspective, both turbine assembly and blade production decreased quarter-on-quarter, reflecting the uneven profile of the year. We do see more activity in the second half of the year with the delivery of the U.S.

volumes and as always, we do add up to capacity to meet demand. And with this, I will hand over to Christoph and he will lead you through the financials.

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

Welcome all from my side. I would like to guide you now through our first quarter financials.

As a starting summary, I can say that our Q1 financials have developed according to plan. For Q1, we did plan with a decent order intake and at the same time with a lower activity level.

We expect the lower activity level to continue in Q2, stepping up gain throughout Q3 and Q4 and maybe just as one example, why do we believe stepping up again, Q3, Q4. We do see much higher activities, particularly around the U.S.

and since we are now very much installations driven in terms of revenue recognition, that will also translate them into higher revenues towards the second half of the year. Secondly, as per our previous communication on March 27, we do see now the technical effects of the IFRS 15 transition reflected in our Q1 financials.

So in a nutshell, the first quarter comes without any surprises and with the confirmation of the 2018 guidance. If you now look at the income statement.

We see sales of EUR488 million and EBITDA margin of 4.1%. The gross margin of 28.8% is positively influenced by a higher service portion within the comparably lower over sales number.

All 45-by-18 measure are well on track and the PPA depreciation of EUR15.5 million is in line with the expected annual PPA depreciation of around EUR60 million, and we look at the tax refund rate of 28%. With that, moving to the balance sheet.

The technical impact from the IFRS 15 transition factors described to our previous presentation is leading to a one-off reduction of the equity ratio that is probably the single biggest impact you can see out of the transition. Due to the changed revenue recognition method, we do see an increase of current assets and inventories here and current liabilities prepayments received, respectively.

And this is simply leading to the prolonged balance sheet. And then, I would like to mention a special effect in the context of our green bonds refinancing and to anticipate questions around this year.

So as communicated, we applied the full proceeds from the bond placement to an early repayment under the existing Schuldschein in order to extend our overall maturity profile. And we executed the first repayment in the amount of EUR100 million already in February and early repayment, and the second repayment in the amount of EUR166 million in April so basically falling into the second reporting quarter.

And so as a consequence, our cash position and the relating non-current liabilities in Q1, they are temporarily higher for a like-for-like comparison. We should basically take that out.

And starting, of course, in April, it's all even out again. And that I think it's just important to mention we're looking out at the balance sheet.

Those two positions, of course, have already gone away in Q2. And with that, I would like to comment on our working capital development.

Working capital ratio further decreased to 4.8% at the end of Q1. And the development of the working capital ratio in Q1 was also influenced by IFRS 15 transitional effects as well as obviously non-IFRS related movements.

And if we isolate now the IFRS 15 related one-off effects, we do see an increase of receivables and decrease of payables due to the lower activity levels and that is compensated by lower inventories at the same time and prepayments received. And this brings me to the cash flow statement.

Important message here is that despite the typical Q1 seasonality, we managed with an amount of minus EUR84 million, a year-on-year improvement of our free cash flow of about EUR95 million compared to the Q1 2017 number, where we looked at minus EUR179 million. The cash flow from financing activities was heavily influenced by the EUR275 million in bond placement.

And as just mentioned, the first repayment of the Schuldschein tranche in the amount of EUR100 million took already place and the second again happened in April. Therefore, when you look at our cash position, I think it's only fair to adjust the position by EUR166 million set aside for the second Schuldschein repayment.

Therefore, on a like-for-like comparison, we're looking at a cash position of EUR510 million compared to the EUR479 million at the end of Q1. Moving now to the total investments.

Total investment development in Q1 proportionally reflects the reduced guided CapEx number for 2018. There are absolutely no special effects here.

We are a bit lower than the quarterly average, but that again will balance out. So there is actually no surprises and we expect the overall CapEx to happen as per guidance.

And last, but not least, I would like to look now at our capital structure. And we do see an increase of the leverage going to 4.9 and that is caused by the fact that according to the usual seasonality that I've already mentioned, the cash position at year-end is always higher than at the end of Q1, which is also the case here, therefore, the slight increase.

And again, bear in mind, that for the leverage calculation, we already mentioned cash amount of EUR166 million set aside for the second Schuldschein tranche repayment is neutralized by an equivalent amount of increased cross bet. Therefore, it doesn't matter when you calculate the leverage.

Now turning to the equity ratio. I've just mentioned that when we talked about balance sheet impact, you do see now the technical effect of the IFRS 15 transition reflected.

And the new starting point here, after the application of the IFRS 15 effect, is an equity ratio of 25%. And from here, we do see a slight reduction in Q1 down to 24.2% caused by our net result.

Now in order to sum up the Q1 financials, I would like to highlight the following three takeaways. First one, Q1 financials are fully in line with our plan and expectations.

We expect that the first six months will show a lower overall activity level compared to the second half of the year. Second point, working capital and cash development compared to Q1 2017 is pointing into the right direction.

And the third point we confirm our 2018 guidance. And with this, I hand back to José Luis.

Thank you very much, Christoph. I would like to take the opportunity to share with you recent news in product development and supply chain development.

In summary, we are executing as planned and as previously reported one month ago in the annual result presentation. What is new from March 17 is, first, the AW3000 platform has been reported as one of the top three best-selling worldwide products in the three to four megawatt growing segment.

This is especially relevant for U.S. and non-European markets.

As previously mentioned by Patxi, despite a slight delay in order intake in the U.S. in installation, we are planning to install more units of this platform this year than the previous year.

And we keep enhancing as well this platform with a new 140-meter rotor for this platform is in a good competitive mode in very demanding cost of energy market. In Delta4000, what is new from the March presentation is that we released one variance of this platform that we show here in this slide, especially designed to target high wind markets, especially in some areas of Australia, U.S.

and especially as well in some areas of North Europe. So with this, we have a fantastic product portfolio, both for European markets as well as for non-European markets.

Regarding supply chain transformation, what the plan is, is more best competitive countries less Europe. In this transformation, it is worth to mention that we phase out our biggest European – worldwide European and German supplier for blades.

At the same time, we are ramping up production capacity in India and in China. So in summary, the company has the right progress to competing in a very demanding marketplace and the right supply chain strategy to do that.

So all in all, I would like to summarize with you, how we see the year. So as previously mentioned, guidance for 2018 unchanged and confirmed, sales between EUR2.4 billion to EUR2.6 billion; EBITDA 4% to 5%; working capital less than 5%; and CapEx in the range of EUR110 million.

Reason for that is majority of the CapEx for new and more competitive products was already invested in 2017. So with this, we'll open the floor for Q&A.

Thank you very much, José Luis. Now I give the word back to you, operator, and I would like to ask you to open the floor for Q&A.

Thank you.

Yes, good afternoon, gentlemen. Thanks for taking my question.

The first one is on the 45-by-18 program. At the analyst conference for fiscal 2017 results, you said that 50% of the savings were already in the books.

I was just curious if you could give us an update on what incremental savings you mentioned you had in the quarter one and relates to that the procurement savings you touched upon that, José Luis. Maybe, you can also comment on that part and how that has eventually already influenced to the good – the quarter one 2018 results?

And then second, one more question to Christoph on the working capital. Obviously, quite a lot of changes, which are hard to reconcile, I think, from the outside related to IFRS 15.

Can you just give us an idea of at least what really underlying working capital development was like in the first quarter, especially for the inventories? I would be curious to hear thoughts if there has been an increase in the inventories to also deliver simply on orders in the quarter two and subsequent quarters?

And third question that's, Patxi on the markets. You said in your prepared remarks that U.S.

not coming up as quickly as initially planned for 2018. While knowing that, I think, the U.S.

should be your most important single end market, can you just give us a sense given that the guidance was confirmed, which markets come to help, so to speak, where you bridge really that volume? And yes, maybe, I have some follow-ups later on.

Thank you.

First, I’ll start off with – good afternoon, Sebastian. 45-by-18 incremental savings here, if you look at the income statement, you do see the personnel costs reduced and the other operating expenses reduced.

But that’s not provided with a full picture, if I would now only comment on those numbers, I could say we have hugely overachieved the operating expenses already, if you look at the amount, EUR70 million, and that the case is, we are doing very well on the OpEx side. The staff costs, as you've mentioned, they have already been realized.

So I can't – you cannot deduct one to one incremental savings from the income statement because there are other effects kicking in as well. But as a general statement from my side, we are absolutely, well underway and we might even to be a little bit better at the end of the year.

So this is in terms of incremental trend so to say. Yes, if we go to…

Yes, that is from the area of personnel savings are kicking in better than expected or is it already...

No, the OpEx. So we are really, I think, doing well on the OpEx side and we expect to further develop that at least according to plan.

On the procurement savings, I can't leverage here. Sebastian, I think it is too early.

Very much what we are doing, we see less volume in Europe, and we're phasing out capacity in Europe. At the same time, we are ramping up capacity in best competitive countries.

As we speak, we are ramping up India for local consumptions as well for global demand in both components, blades and nacelles. The blade factory, I would say, is 60% up to speed.

The nacelle factory will be up to speed Q1, full speed Q1 this year. At the same time, we are ramping up our second blade source in China.

So the effect all combined the supply chain strategy, you will start to see in 2019, but especially in 2020, not much in 2018. Regarding activity and the U.S.

we need to separate order intake from execution. Regarding execution – and Patxi will elaborate a little bit more in the order intake.

In execution, we have firm orders to deliver that were signed in December last year. That will require further level of activity in Q2 and Q3 with installations before Q4 2018.

So with that, we are confident that the volume of the guidance of 2018 is supported by real orders. And this level of activities, especially in the U.S.

is 10% runaround, 10% more than last year. And with this, Patxi will elaborate in the market share and the order intake.

To that point, installations in the U.S. 2017 were 806 megawatts.

And regardless of 2017, 2018 is going to be a 7.8 or 8.5, which remains to be seen what is the actual size of the market in 2018. As José Luis was saying, 2018 Nordex installations remained as expected but by from orders that we're expecting to be installing in the quarters two, three and four of this year.

Okay.

Okay, Sebastian. Moving back to the working capital question.

And now without going into any technical detail, and I think, I understood your questions also in the direction, I would like to comment on the non-IFRS impacted part, right.

Exactly, yes.

That you have kind of a like-for-like comparison in terms of trends how we're doing. And interestingly, it is that despite what you've mentioned now our lower activity level, we have a very, very tight inventory control.

And actually, our inventories now neutralized by IFRS 15 have come down. So I think that is good, that shows that we're able to manage that quite tightly.

On the other hand, we have a development that is increasing, working capital and that is accounts payable development. Accounts payables have produced and that of course is linked to the lower operating level and we expect that to change again when the activity level is going up.

So those are the two trends that I would like to highlight here, again being independent from the IFRS 15 impact.

Okay, so that means working capital was about stable than if I would look at it on a quarter-over-quarter basis and like-for-like basis?

Slightly up.

Slightly up, all right. Yes, thank you very much for that.

Thank you.

Yes, good afternoon, gentlemen. Thanks for taking my questions.

And I have three. And the first one on your sales guidance, I was wondering if you could elaborate what portion of your top line guidance of sales in the range of EUR2.4 billion to EUR2.6 billion is actually covered by order backlog?

If you could give us a percentage figure, for instance, I guess, that would be very helpful. And the second one on your working capital ratio as well and is it fair to assume that your working capital ratio is going to remain below the 5% hurdle for the remainder of the year or are the potential developments such as inventory build up for U.S.

orders, for instance, which could result in a higher working capital ratio, for instance, on a quarterly basis in Q2 or in Q3? And then, the last one on orders, and I noticed last week that they were a couple of news that you've secured quite large order in Brazil, and I think 123 megawatts in Brazil.

However, there haven't been an announcement from your side, could you just confirm if that's correct or not? Thank you.

Okay, Arash, let me start with the first two questions, Christoph is here. On the orders, let me answer like that we do have very high visibility at that point – I think that's fair to say.

However, why are we a little bit reluctant to already say 110% is guaranteed, so to say, is because of the revenue recognition method. And then, we discussed that already in March.

And that's the only thing where I would like to infuse some caution. In the sense, yes, obviously, now completely dependent on keeping the installation schedule.

And therefore, yes, we have high visibility. However, the only element of caution here is we, of course, need and that's absolutely what we want to do.

We need to exactly perform the installation schedule and that's always a remaining uncertainty towards here and if that's okay for you.

So if I understand you correctly it means when you are not required actually to win new orders, but it's just a question of executing installation sometimes.

That’s right. That's the point exactly.

Okay, yes.

Secondly, working capital, that's a hard one. Because you've been looking at the swings, let me put it like that.

Let's say, quarterly working capital guidance is tough, but I prepared to say that we should not see the swings and once again that we've been seeing last year. Of course, the plan is now to keep on that level and then go continuously lower.

I cannot exclude every special effect here. But let's put it like that.

The ambition is to stay at that level and then go in further down. And we will not see the swings going back to 8%, 9% or whatever we have seen last year.

Okay, great. And then last one on Brazil, yes.

With respect to Brazilian market, as I was explaining before Brazilian market is back. And the announcement that you saw will be one of a number of orders that we expect to be landing in that market during the year.

Okay, that was good.

It's a procedural thing, some milestone that is still pending to be considered full order intake.

Okay, great. Okay, that’s very helpful.

Thank you very much.

Good afternoon, thanks for taking my question. Firstly, on pricing I understand the scope had a positive effect on pricing for Q1 orders, which are up sequentially.

But I think, just a comment on what you see as the trend for the underlying turbine pricing in Q1 and into 2Q. Secondly, on the U.S.

market, so if I understand correctly that the comment you're making are specifically to your contract being effectively more backend loaded into 2019 and 2020. I guess, what is driving this first of all?

And then what is giving you confidence then of further uptick and further order intake as we go through the next 12 to 24 months? Thirdly, services, wondering what happened, the order intake in Q1, which is very low?

Thank you.

Okay, let me take the first one, first question with respect to pricing, you are fully right. Price is very dependent on scope, product mix, market mix.

We had a quarterly 0.81. If you compare that with peers, you see that there is a significant difference.

Therefore, you cannot draw too many conclusions with respect to one single quarterly ASP data point. With respect to pricing evolution in the markets, we are actually glad to see some of our market leaders and our peers reporting decreased price pressure in the market, as they are main influencers into that.

Now being the market leaders, they have a much more influence into setting market prices and, therefore, we are glad to see they announcing that their price is decreasing. However, we need to see full evidence of this into the markets, and we still need to see that – evidence of that truly happening in a span of time greater than a quarter.

With respect to the U.S. markets, going back before to my comment was with respect to how much the 2018 actual market size is going to be.

Nothing to do with respect to our internal situation as I was explaining before. Installations in 2018 are fully backed by firm contracts.

Therefore, we are very safe to guide the installations into the market for 2018 into the U.S. regardless what final market size is.

My comment was mainly that we do see some spillover of projects into 2018 and, therefore, this may affect the market size that we have anticipated and that analysts were anticipated in the U.S. market, nothing more than that.

And your third question was?

Was about service, and the answer for this is quite straightforward. If last year's order intake was very low, it means that there is – in a stagger quarter, you will see the results of declining order intake for service associated with new installations year-on-year.

This effect – this we'll plan to reverse over time when we start delivering a growing order intake numbers now quarter-on-quarter.

Got it, thank you.

Hi, good afternoon, everybody. Thanks so much for taking my questions.

I've got a few questions. The first one is on your order backlog.

I just wanted to ask that in your Slide number 8, you've shown the order backlog – the impact of the IFRS 15 as being EUR666 million. I guess, that will reverse completely in the coming quarters, right?

Is that the way to look at it?

Yes, reverse, you can say reverse. On the other hand, Pinaki, we have somewhat entered now in a new world in the sense that we have now everything shifted towards installation and that leads, of course, to that increase.

So I don't see you can completely say reverse. We have now simply established a new level due to this one-off move towards the installation and that has contributed to that one-off effect in backlog.

Yes, but these are revenues that you've already recognized back in 2017. But now you have to recognize them again as you complete the installations…

Yes.

EUR666 million will have to come out of your backlog.

That eventually is true, yes.

Okay. So sort of the underlying backlog is kind of around EUR2.1 billion, if I adjust for this?

Like-for-like EUR660 million, yes.

Okay, cool. And then secondly, at this time last year, you had a relatively tough Q1 in terms of orders, and you at that time had said that you're expecting H2 to be much stronger or especially Q4 to be much stronger.

Do you have any sense of that now in this year in terms of how your pipeline is looking for Q3 or Q4 compared to last year? So can you repeat what you have done last year in Q4, for example?

We are not guiding, as you know, order intake for the next quarters. What I can be is – with that, we are pretty confident that the trend with which we are starting the year, we will continue in the next quarters.

But not to guide any particular figure, I wouldn't be actually repeating any of the statements that we did last year.

But last year, you had actually guided to particular figures that you would have like over EUR1 billion…

Yes, but as you know, we are not guiding order intake. I said we had a strong beginning of the year, and we will see relevant activity as well in the quarters to come.

Okay, great. And then finally, the other question that I wanted to ask was, how does the sort of lower pricing feed into your sort of 2018 and 2019 numbers in terms of margins?

You've already given the 2018 numbers, but is there a spillover effect into 2019 as well some of your maybe 2018 contracts that had a better prices?

I mean, 2018, we are well equipped. We don't see an impact in steel prices or taxes or price pressure because the deals that we are landing now in Q1 and Q2, a big part of those are going to be for deliveries in 2019.

So we still have time to work out the costs, and it's too early to guide 2019. So 2018, everything is under control regarding tax impact, commodity impact on the prices, where the prices close in December and the cost is the best view of the cost we have today.

And with the prices and the contrast close in Q4 last year and with the cost that we see today, we are confident to, let's say, reinforce the guidance for the year.

Okay, great. And then finally, maybe could you give us an update on Germany, what's happening with the building permits and how things are going there?

Because you guys are, obviously, quite big in Germany.

Yes. As you know, there is a political debate with the new government set, and right now what they're doing is assessing two very relevant topics for the industry.

One is the issue with respect to be able to participate into the auctions with or without building permit, and the second one is whether volumes are going to be altered to the greater. And there is no clear outcome as per today, although we do expect in the very near future that there is a view formed on their side with respect to both topics that will affect the general market.

And what about the actual building permits? Are you seeing more activity there in terms of the various authorities allowing more permits?

What I can share with you is that there is significant activities happening right now in the market of projects that won PPAs into last year auctions. And as a result of that, given that those projects were awarded without a building permit and technology decisions are being made as we speak, and therefore, a significant new activity of building permit is happening now.

Okay, great, thank you so much.

Good afternoon, I have a question – I remember you said you are trying to have a higher cash position as of end 2018 compared to last year period. So it would imply you still want to generate positive free cash flow for 2018?

And should partially come from working capital release. Does it still apply?

I mean, if I calculate your working capital from like 4.7% of your sales in 2017 and now below 5% since that there is not much room of working capital improvement there, and how can you, yes, generate positive free cash flow? And the other question is, given the good number of order intakes you reported recently, are you becoming a little bit more positive for 2018, compared with the last call?

And would you see your EBITDA margin coming at the upper end or the middle of year margin guidance? Thank you.

Okay, Christoph here, hi, thank you for your question. I start with the cash flow question.

Well, if I recall it correctly, my statement always has been that I said, we have a working capital guidance. And we – of course, if we are successful in reaching the working capital guidance, we should become better in terms of free cash flow compared to end of 2017.

And I do reconfirm that. I do not want to now hangout free cash flow guidance, but that statement still stands, and I think the logic is there.

And with respect to your comment is there still room for improvement. Yes, there is absolutely.

We've been talking about how our working capital program, we've been talking about measures around finished goods management and smart logistics. Those are all measures that take a bit of time, and of course, we are still calculating with the potential to realize.

So all statements made are still valid.

Regarding the view on the forecast for the future. I will say that in our last call, March 2017, we just emphasized that the main reason of 2018 numbers versus 2017 were was change in Germany and substantial recovery is going to be expected when Germany comes back in 2020, all their things being equal.

So, the order intake evolution in Q1 stands from all those things being equal. So, there is no positive surprise to us the order intake of Q1.

So as a consequence, our view for 2018 and 2019 are the same as in our previous call. So, the real change is going to be the effect of Germany 2020 onwards.

Okay, thank you.

Thank you very much. I am trying to better understand the raw material impact especially steel.

Can you give us a sense of what is the actually raw material increase that you have to mitigate? So in terms of gross margin, what is the potential impact of the price increase?

And away from steel, I have got another question. What are the other significant raw material increase that you need to address going forward?

Thank you very much.

Thank you for the question. Regarding raw material steel, there is increase and steel depends market to market, but especially in the U.S.

For us, the consequence for 2018 is none because all of our deliveries have binding contract from the supply chain perspective in fixed terms. So we are not exposed to this steel increase.

In the long term – and we saw this communicated by our competitors, that they started to see price flattening. And eventually, this might be the rationality increasing the cost.

This in our company is going to translate into a bigger share of concrete towers versus steel towers. We have our cap solution that eventually will compensate the steel price increase.

So we will see compared to other competitors, that we are better equipped. We do, specially non-European markets, more than 50% of our towers using concrete technology.

So this is a good opportunity for us to expand the market reach of this technology. And other than steel, we see minor impact.

I think those are temporary with limited – with no impact in 2018 because all the contracts on top of steel are secure and limited in impact in 2019 onwards. We have levers to pull design changes, supply changes, to compensate.

So still no impact in 2018, 2019 onwards, better reach of our contingency plan for that. Other raw materials, we have time to develop the solutions to compensating in 2019 and 2020.

Thank you.

Good afternoon. If my memory does not fail me.

I think during the road show, you have said that the second half of the year when it came to year-over-year changes would be weaker versus first half of the year. I'm talking about 2018 but in your prepared remarks you mentioned that you are expecting improvements in the second half of the year.

I'm guessing that as versus the first half of the year. So when we compare the second half of 2018 versus second half of 2017 as opposed to first half of 2018 versus the first half of 2017.

Are we to expect a bigger decline in year-over-year change or you’re expecting improvements to come in second half, which will bode well for your year-over-year

If you could be a little bit more specific in talking about order intake, execution or financial performance.

Financial performance.

Let me put it like that, I mean you have our Q1 indication as a portion of our overall annual guidance, right? And now if you add that basically somewhat along the notion that we said, Q2 will also still be little bit below average and then activities picking up, Q3, Q4, I think you have a pretty good view on how is first half performing compared to second half.

I think the direct comparison with second half 2017 does not really help because we are looking Q2 the reasons that we have explained very much at a different 2018, with an overall reduced revenue as per guidance and the IFRS 15 impact. So I think to compare our expectation second half 2018 to second half 2017 is difficult.

I would really look at the guidance. And again, I think we made pretty – we created quite some transparency around how do we expect first half versus, second half all together adding up to the guidance.

Okay, you have mentioned that the credit metrics were probably going to peak towards the end of the year. Are you able to confirm that?

Sorry, I didn’t get you.

The leverage. Yeah, credit metrics.

The leverage, okay, fine understood. And leverage, of course, as we've mentioned, leverage will be slightly on a different level now, and we have put out our ambition level to not go beyond the 1.5 or to stay below the 1.5.

Looking now at the reduced EBITDA levels compared to 2017, I think it's fair to assume that we will see slight increases in the leverage. Yes.

But not below the levels that we have put out as a target level.

Okay, but it terms of timing you expect it to peak towards the end of the year, I would guess.

Not necessarily. It's a little bit of – it's hard to predict because obviously our cash position will have quite an influence.

And so, I think it's hard to predict as per today. If we again would see kind of a very strong homerun as we saw in 2017, which is hard to predict today, but, of course, would very much help our leverage.

So, I would not necessarily state already today that leverage will be peak at Q4. Let’s see.

Okay. In Germany, the May auction, when you expect to get the results.

They will be coming in the next couple of weeks. I am sorry, the May auction will be coming in the next month.

They will be coming in the month of June.

In June, okay. And you said the discussions around the total volume to be auctioned and also whether the coming two auctions in August and the one where I believe whether they'll require building permits or not, you said those discussions should come to a conclusion soon enough as well?

It is speculative because it's in the hands of political debate at this moment. Potentially we see that the decision with respect to building permit may come earlier than the decision with respect to volumes.

But it is a speculative talk. We need to wait to actually see how it is really played out.

Okay

Sorry, Felix here. Since we are running out of time, please one final question from your side.

Yeah, this was third one, if that is okay.

Yes.

The February one already happened auction in February. When do you expect that to start converting into revenues, not for you, but whoever gets obviously the tenders.

For permitted projects between nine and 12 months after reward, for non-permitted projects between 18 and 24 months after the reward.

But February was all permitted, wasn’t it.

Yes, so, nine to 12 months after the reward.

Okay, great thank you very much.

Yes, thanks for taking the follow-up question. On service, I think you've haven't touched upon yet.

The margin looked obviously pretty strong at 17%. I'm starting a little really understand how on 8% top line growth, you are able to double the EBIT, but maybe you can just give us a quick idea how that is possible?

But on a more general note, is the 17% rather new normal, so should we think about 15% or 20% or so in that ballpark that your service business can do in terms of EBIT margin generation? And then secondly, back to the markets, can you just give us a sense where we really should see the bigger parts for you?

I think between the lines, it became evident that especially for Latin America, you still have great hopes. And I think also, Patxi, you mentioned in the side remark for South Africa that you do expect more to come through there.

If you could just refresh our memories on what the sort of not yet allocated projects from orders-wise is sometimes of volume into the South Africa market is very much appreciated.

Hi,, Christoph here, I’ll take the first question. Absolutely fair question.

We have only mentioned that in the footnote on the slide that we have changed our reporting logic here. It's a segment-specific overhead allocation.

What is the underlying rationale here to do that? We so far have not – and I think that's a little bit different maybe to how you see it also with our peers.

We have not basically reported strictly in the sense of a segment reporting. And in order to provide more transparency about the operational service margin, we have now basically taken the overhead allocation in a way that we made it segment-specific, so that service in that number does not have to carry all allocations across all businesses because that is kind of contradiction when doing a segment reporting.

So therefore, you see that increase. Going forward, this is not – then looking at the new reporting methodology, this is not a one-off, but that should be, for the time being, the level we are looking at.

With respect to the South African question on the remaining pipeline, we had latent short of 550 megawatts in Round 4 awarded projects. By the end of Q2, over half of that will be converted already into order intake and the remainder will be converted into order intake in the next two quarters.

Okay. And for the Latin American markets, can you just give us a sense?

Brazil is, obviously, one that is very, very clear why you would have, I think, high hopes. But you just give us the sense of really what the volumes are that you are currently seeing?

I do not guide. What I can tell you is that significant volumes were awarded not just in Brazil, but as well in some other some Latin American markets.

And there is expectations as well, as you know, even in Brazil with an A minus 6 that is expected to take place in August as well as in Mexico and some other markets. What we do is we have a very strong position, with very good market share, historically, in the past, customers that trust us and a very competitive products adapted for those market conditions.

Therefore, with the volume in the market being back, we do expect to have a good performance in those markets.

Okay. And conversion should be rather done in 2019?

Or are the execution windows even catching further than that.

If you see historically, when auctions take place, generally, order intake materializes over the next 12 months. So yes, if the later the auction takes place in the year, the more difficult it is to actually convert order intake from that volume that is awarded.

So generally, we should expect that to be materialized in order over the next year.

But our specific plan for that is increase – the market share of the order intake is going to be higher than the market share of the past installations. But that is our plan, and that is going to translate into revenue in 2019 and 2020 .

Okay, Thank you.

This is Felix again. Thanks for acceptance.

Thanks for joining us today. And now on this occasion, I would like to hand over to Jose Luis once again for the final remarks and for key takeaways.

And I'd like from my side to say goodbye. Jose Luis, please go ahead.

Thank you, Felix. Main takeaways from the scroll, as was mentioned, 2018, we will see different levels of activity and results.

But in general, second half is expected to be stronger than first half, and this substantiated by the fair orders and fair obligations to deliver. We have in place the right product strategy as previously mentioned, products that are selling quite well in very demanding markets.

We have complemented the product portfolio with a new introduced N133/4.8 for strong wind sites. We are in the middle of a supply chain transformation, adapting capacity to demand in best competitive countries and in best land, of course, to the location of the markets.

And again, our global footprint and our business development should eventually harvest the growth perspective for wind energy market. And we as a management team are well prepared for delivering our 2018 guidance.

With this, thank you very much, and hope to see you soon. Thank you.

Thank you very much. Bye, bye, thank you.

Thank you, bye, bye.