Nordex SE

Thank you very much for the introduction. Good afternoon, ladies and gentlemen.

I would like to welcome you on behalf of Nordex to our today's conference call. Our board member Jose Luis Blanco, our CEO; and our CFO, Christoph Burkhard; and our CSO, Patxi Landa who will give a presentation guiding you through the latest developments, the markets and the financials of the first half of 2019.

Afterwards as you all heard there will be a Q&A session. Please limit yourself up to three questions so that everybody has a chance to ask.

And now I would like to hand over to our CEO, Jose Luis. Please go ahead.

Thank you, Felix. Thank you to all of you for participating in our half one 2019 results presentation and earnings call.

We have prepared for you a today standard agenda. I will share with an executive summary as usual.

Patxi is going to guide us through good development in market and orders. With Christoph we will dig into the financial performance of the company.

I will pull back to share with you news on operation and technology as well as a review on evaluation on executing our strategy to finalize with guidance for 2019, opening the floor for Q&A and final remark and take away from outside. So with this, let's move to the executive summary.

I would say the headline here is half year in line with expectations and to be more specific sales approximately $991 million, we will see later on the revenue number is different, preparing the company for second half of the year. EBITDA margin in the first half 1.7%, working capital ratio minus 4.7%.

It is very remarkable that second quarter was a very strong I will say record high quarter, with further intake of 2 GW. Very remarkable as well the success of U.S.

market together with introduction of the Delta4000 in U.S. market.

As a consequence book-to-bill ratio stands at 2.61 in the first half clearly signaling the future growth expected in -- for the Nordex Group. We announced today the introduction of a new product, an evolution of bigger rotor of our Delta4000 platform with this new rotor 163 meters, we can achieve more than 20% AEP annual energy production on a typical low wind site and offering the same flexibility with the different power modes and sound [ph] modes as the normal 5 megawatt was.

As well was mentioned in Q1 and the same is to be said in Q2, the key structural patterns for 2019 still remain valid as already presented, which means high level of activity plan unexpected [ph] in the second half. With this -- with the visibility we have in hand guidance for 2019 is confirmed.

And we will like as well to mention that the CapEx for 2019 was decided to increase to around $160 million in order to support profitable growth in 2020 and beyond, driven mainly by, I would say, additional demand than previously planned for Delta4000. And you remember that we already sign a view the possibility in our Q2 call that we were studying that.

We saw good volume margin opportunities that require further investment in supply chain and we decided during the quarter to take to take that volume and to prepare the company for that. With this, I would like to hand over to Patxi to share with us market and customer as well as order intake and other development.

Thank you.

Thank you, Jose Luis. Good afternoon, ladies and gentlemen, let me share with you the markets this quarter, we see a positive momentum in the U.S.

beyond 2020, where we start to see areas now that 2021 might actually exceed the initial expectations and be another big volume year. As well, we continue to see good activity levels in most of the main European markets like Spain, France, Turkey, or the Nordics with the exception of Germany, where the market does not yet show signs of recovery and continues to experience very low levels of activity with significant under subscriptions in the auctions.

Despite this, we achieved 2 GW of new turbine orders in the second quarter, for a total of 3 GW of new orders in the first half of the year. That represents a 45% increase for the first half of 2018.

In monetary terms, this corresponds to EUR1.3 billion, new orders in the quarter and EUR2.1 billion of new orders in the first half of the year. To have achieved this growth in a moment of significant weakness of our traditional main market like Germany proves phenomenal global market footprint and customer base.

Additionally, we will benefit from the German market recovery whenever that takes place, as we are achieving a very good penetration with our newest turbines in the projects that are currently undergoing the permitting process. ASP for H1 2019 was EUR0.7 million per megawatt, consolidating the price of stabilization experienced over the last quarter.

Service segment grew 12% quarter-on-quarter with EBIT margin of 17.3% in the first half of the year continued with this solid performance. Service backlog increased as well to EUR2.3 billion.

As a consequence of the good sales performance, turbine order backlog increased to EUR5.3 billion at the end of June 2019, which represents a 65% increase over June 2018. 44% of the backlog sits in Europe, 41% in the Americas and 15% in the rest of the world.

Combined order backlog rose to EUR7.6 billion at the end of June 2019. And with this, I hand over to Christoph, who will take you through our financials.

Thank you, Patxi. Good afternoon ladies and gentlemen.

Welcome also from my side. So I would like to guide you now through our first half 2019 financials.

The first half 2019 went according to plan on an anticipated lower level compared to the second half, as communicated previously, and also Jose Luis mentioned that already. And now starting with the income statement sales of EUR991 million do show the back end loaded structure of this financial year.

But in contrast to the Q1 sales number the Q2 sales number and as a result, the H1 sales number are already exceeding the first half in 2018. And to our best knowledge today, we still expect the roughly EUR1 billion in sales in H1, accounting for approximately 30% of the total year and sales number, as I've already indicated in our calls in March and May.

The significantly increased total revenue number of EUR1.6 billion compared with EUR1.090 billion of the previous year gives a clear indication of the steep sales curve ahead of us in H2. Also in line with previous indications, gross profit margin start to normalize, the margin has come down in Q2 to 27% from the exceptionally high level of 35% in Q1, leading to a combined 30.6% in H1.

And eventually also the EBITDA number of EUR17.1 million representing an EBITDA margin of 1.7% is a consistent H1 result stemming from the still low sales volume and the consequential still higher proportion of fixed costs. Now going to the balance sheet, also here the effects of the preparation efforts for the high installation volumes in H2 are clearly visible.

Current assets, hence, inventories have further increased compared to Q1 leading to a further temporary prolongation of the balance sheet impacting the equity ratio. Net debt stood at EUR204 million at the end of H1.

And now let me comment on our working capital development. The working capital shows at the end of H1 a strong ratio of minus 4.7%.

This improvement versus Q1 has mainly two results: firstly, is the contribution from high prepayment as a result from our strong order intake. Secondly, we were able to finance the inventory ramp up needed for project execution in H2 with stringent working capital management.

Again this is a result our preparational work for the mentioned increase of our execution activities later this year. Now going to the cash flow statement, free cash flow at the end of H1 stood at minus EUR161 million and the deterioration of the free cash flow despite good working capital performance is driven by the following factors.

Firstly, Nordex is still incurring net losses; secondly, our investment activities and related outflows have increased. The non-working capital relevant outflows in H1 have partially been caused by VAT phasing effects in the context of our ongoing internationalization.

And last but not least, you can see in the repayment of the Schuldschein the promissory note tranche in April reflected in the cash flow from financing activities. And just to be precise, we will repay the tranche of EUR43.5 million to Schuldschein in April and have the usual tranche of our research and development loan from EEIP [ph] repaid, so that adds up to roughly EUR50 million.

With this, going to the investments, investments in H1 amounted to EUR60 million largely consisting of investments into our blade facilities in Spain and Mexico. In addition, we have invested in more tooling equipment needed to support our increasing installations plus further investments for our production in India.

And as already mentioned Jose Luis and as indicated in our Q1 call, we have revised our total CapEx outlook for 2019 against the background of the continuous dynamic for order intake momentum. We now concluded to revise our CapEx guidance upwards to approximately EUR160 million and maybe to anticipate already potential questions you might certainly ask what is normalize going forward?

We believe that and we plan that this EUR160 million, which is largely also advancing the investments or speeding up investments is extraordinary and we rather look at a normalized number in the ballpark of EUR120 million. And that’s last, but not least leads me to our capital structure, and here we do see the leverage curve increasing to a temporary peak level 2.5, but we do expect the curve coming down again.

And we have already touched upon the factors influencing the equity ratio, Q2 a prolonged balance sheet, and also that I’ve mentioned that we expect towards year end to reduce in terms of total balance sheet sum. Now let me sum up the H1 financials of the Nordex Group with the following three takeaways.

Nordex numbers in H1 to show the expected low sales volume compared to what is ahead of us and corresponding EBITDA reflecting the communicated structural pattern in 2019. Nordex is well prepared for the planned increase of execution activities during the second half of the year, which amongst others is reflected in working capital and cash flow.

And Nordex is confirming its guidance for sales, EBITDA and working capital and is adjusting its guidance for CapEx in accordance with our previous guidance, communication, due to continued strong order intake momentum for the Delta4000 in 2019. And with this, back to Jose Luis.

Thank you very much, Christoph. Let’s share with you the operational performance in first half of the year.

Important to mention, before bringing to the numbers is that the Nordex Group as a whole works with a pool system, it means that we don’t reproduce, so we produce when orders or customers are requesting us to produce. So the installation number is a consequence of customer demands and of the production level of H2 2018, we’re installing in first half of the year, mostly the production of second half of last year.

With this, you remember production volume second half of last year was low. So we are installing 778 megawatts, decreasing 17%, compared to last year.

Installations in 13 countries 242 turbines well, I would say balance between geographies. As was previously mentioned before and with the production number, we will explain better.

The project execution with significant increase in the second half of the year in order to secure the guided revenues. Final installation number for 2019 is going to depend mainly from availability of civil work from our customers, as well as the usual weather, winter mainly in the North Hemisphere, but everything is prepared to install the project that bring the guided numbers.

We move to production. We see substantial increase in our production activity.

And this is again, only driven by the contract obligations with our customers. We have increased the turbine assembly output more than 50%, compared to last year, as well as the blade, internal blade manufacturing output almost 50%, compared to last year.

This means 517 units in the first half of the year, 182 Germany, 222 in Spain, 28 in Brazil -- for Brazil, ramping up India to 80 units and ramping up as well Argentina for Argentina 5 units were produced. The last but not least in production I think it’s important to mentioned that last year Nordex Group produced less than 3 GW.

This year, we are planning to produce more than 4 GW and with the decision we took driven by demand mainly for the new products we are preparing the company to produce in 2020 more than 5 GW everything is planned in that way. Okay.

So this is regarding output on production regarding new products, I think it’s very important today to report as well. That despite having very good acceptance on the current variance of Delta4000 we are not just stopping there, but thinking and keep developing technology and products that support the order intake 2020, 2021 and beyond.

And in that regard, we announced today, the launch of a new evolution of machine new rotor 163 meters, 5.X MW this as usual was designed purely focused on the lowest cost of energy is developed on the same nacelle as the traditional Delta4000 for class S sites. Same tower configuration as previous we decided for a single piece blade based on the 149 design.

And mainly is based on the same hardware with this turbine we can deliver 20% more annual energy production per turbine site in a low wind -- in a typical low to mid win side. So this will contribute to support the future growth of the company.

Moving towards reviewing how Nordex is executing on the strategy. Remember we want to be sustainable global COE leader and focus on being flexible and fast and always COE mindset.

Regarding global presence, I think the numbers are self-explanatory 3 GW order intake in first half, well regionally balanced with very little German contribution is very remarkable the success. COE optimized products as we mentioned before in the supply chain transformation and with the new products, we are well equipped to deal with growth expected in the future.

Regarding supply chain transformation, as you saw in the second quarter numbers ramping up India and as you heard as well, from some of our blade producers we are as well committing to ramp up blade production in Turkey in, summary preparing the company first for the 4 GW or more than 4 GW that we need to produce this year. But second and as important preparing the company for the more 5 GW ears that we plan to produce next year, ramping up as well the production capacity for the for the new product Delta4000.

Regarding operational costs efficiency, we discussed about supply chain transformation and very important in current times was mentioned by Christoph successful and very, I would say, detailed working capital management program implemented. And nonetheless the service business growing organically, driven by the order intake momentum of the company and as well bringing added value solutions to our customers.

So in summary, in the path to become a leading global onshore wind turbine supplier. And with this and just to conclude before the Q&A, we would like to go with you to the guided 2019 numbers.

The headline is self-explanatory. We as a management board confirm the guidance for 2019, and we have as mentioned decided to increase CapEx in order to prepare the company for a profitable growth 2020 and beyond.

With this sales, we are planning in the range of EUR3.2 billion to EUR3.5 billion, EBITDA margin between 3% to 5%, working capital below 2% and CapEx as was mentioned in the range of EUR160 million. This is what we have prepared for you as a standard.

So now we would like to open the floor for Q&A.

Yes, thank you very much, gentlemen. And please operator go ahead and now we are happy to take the questions.

Good afternoon, gentlemen. Thanks for taking the questions.

The first one would be for Patxi on the U.S. market.

You said that the 2021 year might be likely another big volume year. And after the more than 1 GW you secured in quarter two alone, can you just shed some light on what the pipeline looks like in that particular market?

And related to it, also provide some more color on how you do expect the market to trend and what your volume assumption is for 2020-21 both market and ideally also for the company? The second question would be more than for Christoph on the free cash flow side, and particularly around working capital.

Obviously, we have seen working capital trending much better than what you have been guiding so far, and also what everybody would have expected until the year and with the guidance still at plus 2% of revenues versus the minus 5% in H1, what is holding you back at this point to take a more positive view on working capital that would be the question here. And then lastly, and that's related to the gross margin trajectory, I think in the past you indicated that with the Delta4000 series you were to expect the like-for-like higher gross margin to the tune of 5 percentage points Delta4000 compared to the old turbine generation.

Would you confirm that at this point in time? And can you also give us, at least, a sense how we should expect the more than 30% share of H1 orders to convert in revenues i.e.

megawatt deliveries in 2019 and particularly and also the ramp for 2020? Thank you.

Thank you, Sebastian. Let me take the first question.

My comment on the U.S. market 2021 was in the context of the cliff that we were seeing post 2020, when 100% of the value of the PTCs would cease to be the norm and 80% of the value would start kicking-in.

It was some sort of a consensus that the cliff would have been significant at one point in time, with a drop in the market to different sources 5, 6, 7 GW size, volume market for 2021 install. What we see now given the deal flow and the momentum that we see in the market, is that it is adapting to a scenario that we may see a 10 GW volume year or even beyond.

So, it's difficult to quantify right now what we see today, but we certainly see that the momentum in the market is there. And why not maybe expect a repeat 2019 year, and so in essence, significant volume in the market for that year.

And with respect to our pipeline, you know that we do not comment specific pipeline or market details. But what I can say is that we have been installing 800 MW over the last three years already now.

And that is the number that we expect to install this year. And really, as you see the order intake that was achieved last quarter will in full be installed in 2020.

So the indication is that we will be installing well above a gigawatt in 2020. So in essence, almost doubled the size of what we have been installing in the past in the U.S.

market. And what I can confirm is a good momentum that we see from an order perspective and we expect that momentum to continue over the next period.

May I just ask one question related to the comment you made on the U.S., if the 2021 constructive view more function of the market there is limited capacity constraint suppliers are constrained in 2020. And with that project slipping into 2021, or would you rather believe that that to one extent, but also that the market itself with the new product categories and with obviously the much better LCOEs is simply willing to take more product because wind has become so more competitive?

It’s both things being the second part of your question, the important one and it's true that there have been some project slippage and delays that fall into 2021. But the good thing is evolution in the market to a plus 500 feet project unleashes the value of the new technology that is in turn absorbing the impact, partially the impact he of the loss of value from 100% to 80%.

So the market is very dynamic in the U.S. probably the most dynamic market across the globe.

And once again, is showing the ability to adapt itself to new scenarios. And as a consequence of that, we start to see momentum and therefore volume for 2021.

Okay. And Sebastian then moving to your first question around net working capital, you asked about the plus 2% guidance and what prevents us for me being here more positive.

Okay. So I take the opportunity and I will be more positive related to the plus 2%.

On the other hand, already to put some realism in here, we have achieved a very good minus 4.7%. And that's somehow the benchmark we are running up against now.

So we have already moved far away from the plus 2%. And maybe to already anticipate question in that direction will we be able to further improve towards and to -- basically to generate an offsetting effect beyond the minus 4.7%.

To be honest, difficult, because in H2, it will become harder to realize further improvements in working capital. We have a lot of activities, installation activities we have year-end uncertainties.

All milestone payments would have to fall in place right on time you know that of course after invoicing, we also have to wait a couple of days until cash is coming in. Looking at the extremely back end loaded year, just to put some realism in it's going to be very difficult to become even better than the minus 4.7% now.

If you can stay at minus…

Sorry.

I said if you can stay at minus 4.7% then I think things are phenomenally good here?

Absolutely. Absolutely.

And concerning your gross margin question, we -- honestly, we don't want to be really very specific to the percentage point on how much -- and please differentiate here between the gross profit margin and the contribution margin because this is always the -- we don't have the total cost of good -- the cost of sales method. But we always also when we explained our strategic outlook, we always said the improvement of profitability overtime that we are expecting is going to be a combination of the company growing and economies of scale operating leverage plus improved improvements from the product side and that statement still holds.

And absolutely this will happen. And with respect to the proportion of the 33% for us, it's going to be very, very, very little still in 2019.

The lion share will be in 2020 turning into revenues.

That's helpful. So the -- about 30% would be the best directional comment you could make for 2020 contribution?

For the time being, yes, I mean, of course, there are still many moving targets around installation plans, as always, around that point in the year, but as a very rough indicator. Yes.

Let's keep that. Yes.

That's helpful. Thank you so much.

Good afternoon. Thanks for taking my questions.

Just thinking about your additional CapEx, could you just specify what you're spending the additional EUR40 million on? And is that enough to produce over 5 GW to take you to the about 5 GW ramp rate?

And secondly, am I correct in seeing on slide 15 that you are looking at greater levels of in housing of blade production. Second question is on the U.S., just wanting to understand your success in the U.S.

in Q2, was this price or product? And the third is on execution risks in the second half.

I mean, obviously, we've heard your peers are talking about specific execution issues. I mean, how are you kind of preparing yourself and hedging yourself if at all possible, against any kind of bottlenecks, or potential delays in the second half?

Thank you.

Thank you very much for the questions. This is Jose Luis I will take number one and number three and Patxi number two.

So regarding number one, additional CapEx, you remember that we were mentioning in the previous calls that we were analyzing opportunities to additionally grow the company. We saw good projects and we decided to invest in additional CapEx.

This traditional CapEx is mainly to build new blade capacity with third party suppliers. You saw us on announcement of a deal that we signed with TPI in Turkey to put two additional lines for Delta4000 blade there.

And as we speak, we are in negotiations as well to further increase blade production capacity. This additional CapEx is all external it's not in-house, as a summary in-house for the new -- for the carbon blade for the new platform is what was mentioned in the previous call Germany, Spain, Mexico and the additional CapEx was with third party suppliers.

With this new CapEx with this EUR160 million CapEx plus a normalized CapEx as was mentioned by Christoph, we are well prepared to be 5 five plus GW company in 2020 and 2021. And with this CapEx we have capacity approximately, normalized capacity in 2020-2021 around about more than 3 GW to maybe 3 GW in 2020, 3.5 GW in 2021 of the Delta4000 turbine.

And if I continue with question number three, how are we prepared for execution risk this year? I will say separate the question in three.

I mean, you need contract, you need products to be produced, you need products to be installed. Contracts we have in place, I mean, there is no -- any contract needed to secure the revenue of the year, production plans are absolutely in place.

To give you a flavor, we were producing an average of 10 nacelles a week during the first quarter, 15 nacelles a week during the second quarter, 22 nacelles a week during this quarter, and 29 nacelles a week in the last quarter. So everything is prepared to produce the products that support the already signed contracts in the year.

Where we see as always a challenge is high volume in winter season and availability of civil works in some of the projects, some of the weak projects from our customers, which means worst case, that one of the installations will shift to next year, the three year view of the company is the same, but due to the accounting method, it might be the case that some installations just transferred to next year. But with a view we have today, we are planning that we are going to complete the installations that give the revenue of the guidance.

And for sure, we have a high degree of confidence that we are going to produce the components and no orders needed. So this is a summary.

And going to your second question about price product U.S. Patxi please.

And with respect to that question, let's not forget that we have been building our position in the U.S. market for a number of years now, last three, four years where little by little we have been gaining the confidence of the market of the different participants in the market customers.

And we have happy customers that repeat and we are as well expanding customer base. And we are very disciplined with pricing, extremely disciplined and we take the good decisions in that direction, it is true that we have taken advantage of the situation in the market.

And the timing for the introduction of the new product has helped us in that way. And in that manner, we have been able to significantly grow our position in the market with a good profitability in the deals that we have done.

That’s Brilliant. Thank you.

Thank you.

Hi, thanks for taking my questions. This is Alok Katre from Soc Gen.

I have two questions, actually. First one, it's interesting to hear that you obviously have 4 GW or more than 4 GW of production in 2019 and more than 5 in 2020.

That would -- we assume that you would continue your current order run rate over the next few quarters as well, you obviously mentioned the U.S. and the orders and deliveries sort of that you expect in 2020.

But if you could just provide us with some color on the other markets, where you will have a pipeline or orders in place that should drive this, let’s say, continued growth because clearly Germany is still quite soft, in a way. So, would be great if you could provide us with some insights over there.

The second was a bit on Argentina, if you could just give us a sense of where we stand on -- I think you had a 400 to 450 MW pipeline obviously production has started locally and the politics and currency, et cetera is obviously quite challenging at this point. So, if you could just help us how the risk management is on some of those contracts and what sort of headwinds or so on if there are any should we be thinking about?

Thanks.

Thank you very much, Alok. With respect to the first question, the fact that as I was mentioning previously in the presentation, the fact that we have achieved such a significant growth with respect to the previous period last year without the impact and the addition of the German market shows how strong the geographical footprint of the company is.

So, even if we are seeing a very positive momentum in the U.S. this does not mean that the rest of the markets are as well contributing, you can see in the mix in the order backlog, Europe is contributing 44% and you can see that in the mix of the order intake in the quarter as well what Europe still contributing very significantly in absence of German contribution.

So this means that the rest of the markets France, Turkey, Spain, the Nordics, Ireland we have a wide spread position in Europe and all of those markets are delivering significant volume. And we see the momentum continuing and we see the momentum that is going to continue over the next quarters.

And same situation with international markets, as well. There are some short-term uncertainties in some of the markets where we operate, but that is classical to this industry always has happened and always will happen the good thing is that we are operating in a number of markets derisking the potential risk that one of or a couple of markets might suffer shorter volatility.

And that pretty much could be the case of Argentina is one important market for us, but one market. I think to the Argentina case we're executing four projects at this time more than 500 MW, projects with very good and solid customers.

And with the information we have today margin is not at risk, project are not at risk. It’s worth to mention as well that around these two companies with local contain capacity addition in Argentina at this stage, which may be a good opportunity depending the scenario of the Argentinean election going forward.

Because you shouldn’t forget that Argentina is gifted with the best green resources all over the world. So whatever is the political scenario wind is going to blow and is going to deliver very cheap electricity cost into Argentina and we are prepared for keep producing local products there.

Okay. So is it…

Sorry, go ahead please.

Sorry, yes, so just wondered from a risk perspective is it fair to say that your exposure to the peso net-net is quite limited in that sense?

That is very limited, I think, we very much -- the rule is that we get paid in the currencies that we have the costs. So no relevant exposure.

Serious exposure in the product and the exposure is in the local services could be a timing effect in the local services, but I would say is very manageable. And regarding the CapEx as you remember we invested there with the help of a local player Fábrica Argentina de Aviones, FADeA, which is a state owned company that might be a good move as well and the investment was planned for the existing volume with the upside to bring more volume if there is more volume in the future.

So I would say we are well equipped to deliver what we have in hand without impacting margins and we are well equipped for whatever is the future scenario in Argentina. Of course, we want more win and as much volume as possible and we understand that this might have some timing effect depending the final scenario.

But nothing that is not manageable in the sense that Patxi mentioned, this is the trend worldwide markets come and go or delayed a little bit is the new policies in place. But the good news is that the worldwide market is growing; Nordex is global and Nordex SE is growing more than the market.

So this is the positive.

Okay, thank you.

Hi, Ji from Citi, thanks for taking my questions. I got three, please.

First is on the market, so for Mexico specifically, I mean, obviously, we have that change of government and so there have been views on how the market turning sour, but like to what is your expectations for this market in the near-term? And then what kind of pipeline are you expecting in Mexico going forward?

And also, my second question is on the expected evolution for revenue. So just wondering, I mean, obviously, you have a very backend loaded schedule.

But just wondered if we get a sense of say how your backlog conversion would be in Q3 and Q4. Would it be somewhat evenly spread across, or is it going to be more heavily towards Q4?

And then the last one, more of a housekeeping question is on your interest expenses. So we've seen somewhere around $15 million per quarter for the last three quarters.

Is this something we can expect going forward? Thank you.

Thank you very much. I will take the first question, it is true that Mexico has seen short-term uncertainties given the change of government that took place.

We have therefore, internally, diminished our expectations in the market over the next 12 months. However, we are not completely ruling out the market as we are working on some operations and potential deals supported by corporate PBAs.

But internally, we have diminished the expectations with respect to the market.

Okay, Ji, it's Christoph here. Let me take the other two questions.

As always, we try to provide you really with maximum transparency Q3, Q4. No, it's not going to be equal quarters, as every year, I would love to have equal quarters, but it's again, not happening.

So Q4 will be the strongest quarter, Q3 will be already pretty much stronger than this Q2, but Q4 will be record quarter, I think that we can already -- that we already see now. And then, eventually the final number will depend on what Jose Luis has mentioned largely around EPC preparations being there or not.

But nevertheless, Q4 is going to be stronger than Q3. And that should give you kind of a picture based on the 30-70 expectation now.

Housekeeping, with respect to the interest expenses. Yeah, you're right, you can expect fairly equal amount going forward.

Got it. Thank you very much.

Similar amount, sorry, to be precise.

Got it. Thanks.

Thank you, Ji.

I have two questions, if I may. The first one regarding the average selling price, which decreased significantly from end March to end June.

I guess, that is related to orders mix with maybe more older turbines ordered in Q2. Could you give us some granularity on the reasons of this decrease?

And my second question is on the U.S.-China tariffs. Could you please give us an order of magnitude of the potential impact on Nordex?

Thank you very much.

Thank you very much for your question. ASP, we have discussed this on previous calls.

ASP as a KPI has flows in terms of being rather good KPI to continue to follow the price evolution. Because it's very much affected by very simple things like generator size.

And we are in a moment where we as an industry are increasing dramatically the size of the products that we are selling and as a consequence of that is affecting very significantly the ASP downwards, while at the same time from our contribution margin per turbine that we are selling in absolute terms, margins are increasing. So, that is one of the elements.

In Q2, we were selling on average in the mix, greater amount of turbines with higher nominal capacity as well as scope and geography as we always say. And in the U.S., as you know the norm in the market is that sales of turbines have done without installation that is generally in the scope of the customer.

And as a consequence of that, per se in the U.S. the average selling price is lower than in other geographies.

And as a consequence in the mix, we are seeing an ASP that is lower than previous quarters, which does not at all signal that a price decline or a profitability decline.

Okay, thank you.

Regarding in the U.S.-China tariff to give you a little bit overview of the situation in the case of Nordex, the China based supply chain was the solution to deliver to the U.S. when we saw this tariffs.

We needed to deal with that as quickly as possible. And as a consequence, we decided to invest in Mexico and ramp up blade production in Mexico.

We decided to produce as well more carbon blades in Spain and we closed a deal with TPI in Turkey in order to still competitive selling to the U.S. So, long history short, we needed to react as quickly as possible to do our supply chain reconfiguration.

These supply chain reconfiguration have had an impact in P&L for Nordex under 25 in the low-double digits million euros, which is already factored in the performance of the company and in the guided numbers. And 2020 and 2021, I think we are well equipped, we have already decided and we are in the implementation of the supply chain rate configuration in order to have this as one-off cost and [indiscernible] permanent cost for Nordex.

Okay, thank you very much.

Thank you very much. A question again on the more positive outlook that you mentioned for the U.S.

market beyond 2020. Is that sufficient in -- as you see it overall globally to mean that the global market will be on an upward path in 2021 versus 2020?

Or is it that too far or too much of a stretch? And also, how does this reassessment of the U.S.

outlook affect your scenarios around pricing and margins please?

Okay. The U.S.

to put things in context, ex-China is one-third of the global market. So has -- changing the expectations in the market has some impact in global market.

But my comment was to put things in context that significant time ago one, two years ago, the post 2020 cliff had been quantified very significantly and what we see today for the good reasons that I was explaining before is that that cliff is going to be smaller. And as a consequence of that, the market will grow.

And let's put that it’s not that we are seeing a huge evolution in the market that is going to alter the dynamics in the global market by no means because mathematically that is not feasible. The good positive news is that post 2020 cliff is going to be smaller than we all thought before.

And as a consequence of that, we will be enjoying the benefit of a very good volume year in 2021. And as a consequence of that taking your second part of the question, we are extremely well positioned in the market from every standpoint.

And the expectation that we have is that we will continue with the very good momentum of orders in the market.

And pricing expectations?

Price, too early to see I mean it's too early to indicate what are going to be the dynamics, but what I can tell you is that the good momentum that we are experiencing, we are expecting to continue with that good momentum.

Thanks very much.

Yes, thanks for taking my question. That is on the promissory notes actually, I think you repaid now EUR44 million in April and about EUR200 million is still left.

And in terms of maturity profile, I think it's EUR175 million in 2021, EUR19 million in 2023 and EUR7 in 2025. Is this about correct?

Yes.

Yes. Okay.

And I think you need to come to market in 2020 or use cash in hand to refinance the 2021 tranche. Do you observe more for one way [indiscernible] and how long can you wait here because I think the interest will honestly promissory notes is pretty low and refinance will probably will increase your interest build.

So maybe provide some comments on how you think about your refinancing strategy?

Well, yes, certainly I mean those historically low interest rates of the Schuldschein that of course is something that we will not be able to repeat very soon again that’s absolutely true. However, with respect to the overall refinancing strategy as we’ve mentioned there is still enough time left.

And honestly, I don’t want to comment any further on specifics here. That is very much depending on specific windows of opportunity in the market depending on the usual factors and once the opportunity is there, we will do something.

Okay. But I mean if you opt for new instrument, until when do you see you need to launch those in order to avoid such investors or analysts like me, who ask such questions during the call.

So when are you seeing that it’s -- where the debt point for…

No, no, fair enough, I mean, of course, we will not wait until very last moment absolutely. So I think it would be fair within the next 12 months just as an indicator.

Okay, good. Thank you very much.

Thank you.

Yes, thanks again for taking the follow up. So coming more to production, you obviously have seen tremendous increase in the ramp and volume output from India in particular, and you also as Luis mentioned the cost low double-digit million for recalibrating and readjusting the overall supply chain, et cetera, could you just give us some more color on what the current utilization plans -- sorry utilization rates are and the plants that you have?

And particularly I think in Argentina and India how much headwind you still have? And the second one would be on the Delta4000 ramp in particular, I think on the quarter one call you said that you started the serious production Rostock is my bad memory or ignorance, can you provide some updates really how the ramp up has progressing since and also, answer the question if that product can be exclusively so far produced in Germany or are you also preparing the ramp of the Delta4000 in other geographies?

And then last question one finally for Patxi and obviously you’ve stressed a couple of times that you are not dependent on Germany at all, the numbers obviously prove that correct. But, can you just give us a quick run through on what you expect, what are the key obstacles and then, if and when eventually the German market might come back?

Thank you.

Okay, thank you for the follow up questions, Sebastian. Regarding production, we are ramping up India as we speak to recalibrate the supply chain.

We are ramping up to seven nacelles a week. So India is going to be the second biggest output expected next year.

Argentina is very small, because India remember is India for India plan, the Indian market, but as well we are supporting India to, I would say all the geographies that demand [indiscernible] product which is a very good produce. Argentina is local plant, is to just to comply with local container rules, so nominal capacity of that plan is 3 nacelles a weak and we are producing there as per the demand of the projects.

Regarding Delta4000, we are now I would say in nominal production in Rostock, ramping up the production plan for the volumes that we’ve mentioned before to achieve the 5 plus gigawatt company that we want to be next year out of that 5.5 plus gigawatt company. More than half is going to be Delta4000 and we are preparing Rostock to do that in nacelles but not only Rostock we are as well preparing China for the non-U.S.

markets to do certain part out there. And we are as well ramping up one of the existing plants in Spain.

So we are going to produce this product in a combination of three plants next year, majority is going to be Rostock, but as well, China and Spain. I think I answered all your questions.

And this is what regarding nacelles and regarding blades, we already mentioned we are redirecting the China production to other non-U.S. markets and growing up in the new blades in non-Chinese suppliers, mainly Mexico, Spain, Turkey, on a new supply.

And with respect to the market is a bit of a speculation to see when the market will recover. But as you know, the situation is that action has been taking place already in September now, given the results of the last couple of auctions, Federal Government is taking charge of that, understanding the different options that are material out there to foster permitting onshore.

How that is going to play out? It's pure speculation, but it is our internal assumption that we will start to see pickup of the market mid-2020.

So we do not expect actual market picking up in the next 12 months. And we expect the market to start to pick up mid-2020 and beyond.

And just to get that right the market pickup is more what you would then see coming through in your order intake with execution rather following either late 2020 or earlier part of 2021. Is that the right interpretation?

That's the right interpretation.

Okay. And anything you are currently discussing with people, project developers, et cetera, that are leaning towards Germany is suggesting that you will take a very fair share of the market if and when this one is coming back?

That is -- what I can tell you is I will place it another way wrong, because it's difficult to assess given uncertainty that are there that we are having a very good acceptance of the new products and that we are seeing a very good penetration of the products into the permits. And that leads us to think that when the market comes back, we will be in a very good position to achieve good results.

All right, thank you.

Hi, thanks for taking my questions. A couple of one’s first, just following up in terms of the pricing sort of comments.

If I look at the pricing, or the order pricing, over the last two or three years, and if I look at how that's translated into the P&L, we still see consistently a pretty significant gap in terms of the pricing that you have in the P&L per megawatt delivered, versus what we've seen in the order flow. I was just wondering, should we expect a convergence in the second half only therefore, the second half of 2019, already, the ASP in the P&L for every megawatt you deliver in the second half should be significantly lower than what we've seen so far.

So that the order pricing convergence, or is there a structural reason why the pricing in the P&L has been so different from what you've seen in the order flow? So that's question number one.

Question number two really is just on India, if you could just give us an update in terms of where you stand on the execution of the 300 MW order that you won, I think, earlier this year, and I think it was due from second half of 2019 onwards. Just wondering, given all that we've seen and heard in India, if you could just provide us with some color on where we stand there?

And are you seeing any benefit from the troubles that some of your peers, Senvion and Suzlon. Because one of your peers obviously announced a large order that was previously awarded, I think, to Senvion.

So just wondered, if you're seeing any benefit from that as well, in India? So those two, thanks.

Okay, to the first question, on an ASP perspective, to the arguments that we were mentioning before and scope, geography and the like is very difficult the timing effect on when you actually are taking orders, and when actually those orders are hitting P&L. So if ASP was already complicated KPI, if you want to do the translation that you are doing between order intake and P&L impact, the timing of it destroys any meaningful analysis that you can do in that respect.

And as a consequence of that is very complicated to throw any conclusion as you're trying to do that way.

And just to add at one thing Patxi and correct me here, I mean, the U.S. is a good example basically to show that project profitability and ASP does not necessarily correspond.

Not at all that’s right.

Regarding India, first starting with execution of the 600 megawatt project, we are well advance in the middle of civil work more towards the end of the civil work completion. Nonetheless the less the COD is expected next year.

So I would say, I mean it’s no different than any other customer when you do project of this magnitude. And on top of the I would say proper execution of this project more important thing is ramping up the supply chain for future projects in India and as well as to use the India supply chain base to produce competitive products to other market.

Regarding the potential trouble of some of our competitors, so far, I mean, the market share of those competitors in the bigger scale of things is limited. So you should not expect substantial benefit for Nordex out of the problems of our competitors.

I would say that it’s better to have a factor without trouble than competitors in trouble because this is no good for the industry.

Okay, great. Thanks.

Okay, thank you very much. This concludes our Q&A session.

So Felix speaking, thank you very much for your participation and for the fruitful Q&A discussion. And now I would like to hand over to Jose Luis for the final remarks.

Thank you very much for the calls. As key takeaway we wish to give you key messages the first one is that the guidance for 2019 confirm everything is planned to deliver the guided numbers.

Second that we discussed broadly in the presentation and in the Q&A that the strong order intake momentum continues and continues to support the profitable growth expected in 2020 and beyond, driven mainly by additional demand for Delta4000. This as mention was final as a possibility in the last call and was decided during the quarter to execute in order to be in a position to land this very good order intake with better margins.

And third is that we mentioned that we're not just focusing in 2020 and 2021 profitability, recovery and growth we are focusing the future of the Nordex Group and we keep investing in developing competitive products that will support Nordex beyond 2020 and 2021. And we hope as well that this product will have the same good acceptance from the market as the previous variance.

With this thank you very much for your participation and we wish you wonderful day. Thank you very much.

Thank you very much.