Nordex SE (NDX1) Earnings Call Transcript & Summary

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

Good morning. Thank you very much for the introduction. We are here with our CEO, José Luis. And we will guide you through the presentation and press release of yesterday evening. On this, I would like to welcome you on behalf of Nordex. José Luis will guide you through the press release. And afterwards, there will be a brief Q&A session. And I would like to ask you to limit yourself up to 1 question only. And please let me mention in this context that all questions related to the Q3 results will be discussed on Friday. And now I would like to hand over to José Luis, and please go ahead, José Luis.

Thank you very much, Felix. Thank you very much for joining the call today. We thought that was appropriate to have this call to give you context in between the reintroduction of the 2020 guidance and the Q3 call that is expected to happen next Friday. So talking about the press release, I think the key message is that we have sufficient visibility to reintroduce the guidance for 2020, with sales around EUR 4.4 billion and EBITDA of 2%. And I will say and we have debated a lot, and we see sufficient visibility as well to commit within strategic target for the company of EUR 5 billion revenue and 8% approx EBITDA in 2022. Very important message on top of reintroducing the guidance is that we concluded very successfully the sale of the pipeline to RWE. And a key message as well that despite COVID, we haven't stopped the transformation activities in the company, and we are running a comprehensive company program to support operations and very important to support the key strategic targets in 2022. One of the main initiatives of this transformation, the biggest lever, is the supply chain expansion in India, where we aim to -- where we are already, as we speak, creating 4-gigawatt capacity for exporting globally. And this is the main lever that will support profitability target 2022. In between, the quality of the backlog will -- as soon as we execute in 2021, we will see -- we will start to see positive developments starting in '21. So very much yesterday afternoon. Today, we presented the new guidance for the current year as well as preliminary figures for the 3 quarters. As you have seen, the third quarter was significantly impacted by coronavirus. However, we expect positive development starting Q4, but mainly 2021 and aiming these strategic targets in 2022, supported by the supply chain expansion and the company profit. If we talk a little bit about the effects of COVID pandemic, we will say that we assess and consider the major effects as a one-off COVID-related, that if we include as well one-off project execution risk, the total impact is around EUR 300 million. To explain you a little bit the blocks of this impact, first is various productivity impacts in production due to supply chain disruption and restricted movement of goods and people. So this means that you have less output, more cost, result of the less output and more OpEx. You have very limited availability of manpower in blade factories, led to less output, delayed projects, liquidated damages and so on. And I will say, summarizing that, despite COVID and despite the second wave of COVID, we managed to operate -- I would say, we learned how to operate in a COVID environment in countries with a strong health systems, but we are suffering -- we were suffering in countries heavily impacted by COVID, especially in the South Hemisphere where winter -- they are about finalizing winter, and this was heavily impacting us in especially Argentina and South Africa. Argentina, we are finalizing the last project. We don't plan any activity next year in that country. And South Africa, we put in place the measure to stabilize the country. So the message here is majority of the volume that we are planning to execute next year is in Europe and in the U.S. and despite the second wave of COVID, we know how to operate with major impacts. And last but not least, a one-off effect of a substantial issue with a project in the Nordex with 2 large projects, leading to cost overruns, where we did our lesson learns. And all in all, I would say that COVID and this project execution, we considered as one-off. And the situation of the company is very much stabilized, production running close to 95% and bleeding in the way to be a stop. By contracts, I think we managed quite well to execute the sale of Nordex development pipeline, value around EUR 400 million with positive impact. And very good momentum still in order intake, very good momentum in selling Delta4000, which is, as we mentioned in several calls, 3% to 5% better profitability. And this is the positive message. I think that despite COVID, we managed to counteract and stabilize the company by the sale of Nordex development by securing state support, by securing refinancing of the Schuldscheindarlehen next year. And despite COVID, we managed to grow the company to a 6-gigawatt level. So what is ahead for us for 2021 is delivering the better quality backlog with Delta4000, continue the transformation creating this 4-gigawatt capacity in India, which is the key lever to deliver the profitability target in 2022. So key message is, company is stable, financially stable, no major roadblocks in the midterm, 6-gigawatt achieved; 2021, keep delivering the backlog in Europe and in the U.S. where we know how to operate despite second wave of COVID. 2021, key focus in the supply chain expansion in India that is ongoing as we speak, creating 4-gigawatt capacity there, which will very much support the '22 strategic targets for the company. And with this, I will open for Q&A.

José Luis, thank you very much. Operator, now we are ready to take the questions. Yes, please go ahead. Thank you.

[Operator Instructions] We will now take our first question from Sebastian Growe from Commerzbank.

Thanks for taking my one question. That is going back to the overall impact you have seen in the -- or going to see in the fiscal '20, both on the negative and the positive side. Did I hear correctly that you were talking about total project risks or, say, negative one-offs of around EUR 300 million? So can you confirm that? And then also give us a sense of what the overall book gain is that is related to the project pipeline sale to RWE? So the whole exercise has, obviously, meant to get a better understanding what underlying EBITDA for fiscal '20 is to just get a better sense of what is kind of the bridge elements to get them to the implicit EUR 400 million EBITDA in 2020. So that would be my question.

Thank you very much for your questions, Sebastian. You're right. The overall one-off impact COVID related, plus one-off impact the EPC project is approx EUR 300 million. Further details will be given in the Q3 call on Friday. In order to disclose the book value of the sale of Nordex development, I don't think we will do that because it's quite complex because part was already implicitly within the budget. Nonetheless, further information will be given by Christoph on the Q3 call next Friday. So from my side, Sebastian, the message is, it's a big number, indeed. The reasons is the ones that I mentioned, substantial impacts in the production facility of blades, mainly Spain, Mexico as well India. So this reduced output creates substantially more cost, which triggers project lease, which is EBITDA impact. And then the second biggest block is the execution in Argentina. That is one-off because we are finalizing the project execution there, and we don't plan to execute more volume in Argentina next year. And South Africa, where we are in the process to stabilize project execution in South Africa. And next year, we feel that we are equipped to deliver the good quality backlog that we have in Europe and U.S. mainly.

Okay. If I may, just very quickly as a follow-up to just get a better sense then also for the quarter 4 implied EUR 20 million EBITDA guidance that you provided. So is there anything that we should be prepared for in the sense of there's a big difference to what is driving the quarter 4 EBITDA compared to what you have faced in quarter 3 provided, obviously, we see no massive intensification eventually of corona, but just to get the truly underlying sense of what is sort of the operational EBITDA? So are we talking roughly EUR 20 million then also for the quarter 3 on an underlying basis? Would that make sense?

No, I would say quarter 3 was heavily impacted. I mean was heavily impacted by blade output. Now quarter 4 blade output is 95% of the expected output, which give us confidence that next year, we can deliver the projects that we have in the backlog, and that we can as well deliver the output and the projects that are expected in Q4. So definitely, from the production side, things are almost stabilized, almost back to normal despite COVID. And in the project side, we are just finalizing those projects that were big bleeding COVID related, Argentina and others. But as well, the project in the Nordics is back on shape, I mean, with substantial losses, but we think we have things under control there.

We will now take our next question from Ajay Patel from Goldman Sachs.

Mine is around 2022. As in -- I guess, the question is how much of that year have you already secured in the order backlog? Because if you look, like, Siemens Gamesa, when they talk about onshore market and how much that expected to evolve. Between 2020 and 2022, they expect the onshore market to shrink 15%. But at the same time, you're guiding for your revenues to increase 13%, 14%. What makes you confident that you can gain market share in that environment? And hence, how much have you secured so far so that we can feel confident about that EUR 5 billion revenue now?

That's a very good question. I would say the key driver is the product and the supply chain. I mean, our Delta4000 machine in the 4- to 5-megawatt, 5 to -- 4- to 5-megawatt is the top 2 selling product worldwide, I will say. And second very important message, we are top 2 in order intake in Europe, which is the biggest region with more optimistic mid-term perspectives with the Green Deal and so on and so forth. So 2021, the vast majority of the volume that we plan to execute is already secured with fair and unconditional order intake for 2022. I don't have on top of my head specific numbers, but we are in final negotiation of substantial projects in geographies that we know how to operate which give us early indicators that the trend continues. On top, Patxi will report in the Q3 call that we are slightly optimistic that we will do another year -- a good year in order intake despite COVID. So we don't see order intake weakening for us. We don't see margins dropping for us. So for us, it's all about executing 2021 projects, execute in 2021 the supply chain expansion in India that will start yielding substantial results in terms of profitability starting Q4 2021 and 2022. So the 2022 targets are based on a stable volume, not in the 6 gigawatts company that we are already delivering, that we are already executing. That's very much the assumption behind that. It doesn't mean that we are going to substantially grow it in site. Of course, we will like to do, but that's not part of the assumption. The assumption is that we will stay very much in this 6 plus gigawatt company that we are already executing this year and next year, supported by a strong demand in Europe. Very good positioning in Europe with massive capillarity in the customers, top 2 order intake in Europe with very competitive products, top 2 in this product worldwide, and this is the product that Europe demands. So our combination of products, market presence and so on is what makes us confident about this strategic target. On top, I mean, there are the recent news that we are not considered not part of the U.S. elections. I don't know if this is going to change short-term policy or not, but there is one major impact that the elected President has already announced that the first decision that he's going to take once he's in office, he's joining the Paris Accord. So this is a very positive message for the world and for the renewable companies. So that's very much long history short why we think we are confident that we can deliver this volume. And once the volume is secured, the rest is the margin. And the margin is coming from gross margin stabilization in the order intake, which we see. We don't see any deterioration there. And the rest is the supply chain expansion in India that as we speak, we are building capacity for close to 50% of our capacity will be produced in India with substantial cost savings versus other alternatives that we have. It doesn't mean that we are India alone. We are -- our base of our supply chain is going to be, let's say, local for local Brazil, Europe for Europe, India for rest of the world and Mexico for blade for LATAM.

We will now take our next question from Sean McLoughlin.

Hello, can you hear me?