Nordex SE (NDX1) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Nordex SE Q3 2025 Results Conference Call. I'm Moritz, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions]. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Anja Siehler. Please go ahead.

Thank you, Moritz, and a very warm welcome from the Nordex team in Hamburg. Thank you for joining us for the Q3 2025 management call. As always, we ask you to take notice of our safe harbor statements. With me are our CEO, José Luis Blanco; and our CFO, Ilya Hartmann, who will lead you through the presentation. Afterwards, we will open the floor for your questions. And now I would like to hand over to José Luis.

Thank you very much for the introduction, Anja. On behalf of Nordex Management Board, very warm welcome to the presentation of our third quarter results for 2025, a quarter that marks a significant milestone in Nordex's journey. Let's start with a short recap of our guidance upgrade, which we communicated last week. Over the past 3 years, we have made consistent progress in strengthening the business, and our profitability. Growing order intake is slowly starting to translate into sales, and we have step-by-step improved our margins and free cash flow generation. With an EBITDA margin of 8% in Q3 and 6.5% year-to-date, we have continued that positive trend. This performance, along with our updated outlook for the remaining of the year, has led us to raise our profitability guidance for 2025. If we move to the next slide, let's now start highlighting the key achievements of the third quarter in detail. First, our order book continues to show strong momentum. Turbine orders in Europe grew by 36% year-on-year, while service orders rose by 20%, bringing our total order book to an impressive EUR 15 billion. Second, we have made significant progress in profitability. EBITDA reached EUR 136 million, a 90% increase compared to last year with an EBITDA margin of 8%. Our Service segment also continued to strengthen and achieving an EBIT margin of 18.6%. Third, on cash generation, we are happy to report another quarter of robust performance. Free cash flow rose to EUR 149 million and net income increased to EUR 52 million, up from just EUR 4 million in Q3 last year. Our net cash position now exceeds EUR 1 billion, underscoring our financial resilience. Finally, this strong execution across both projects and service enables us to raise our full year margin guidance to 7.5% to 8.5%, bringing our mid-term target of 8% EBITDA margin well within reach. These results clearly demonstrate that Nordex is delivering on its commitments, enhancing profitability, generating strong cash flows and building a solid foundation for sustainable growth. Let's now turn to next slide where I walk you through the current market conditions in more detail. The third quarter of 2025, we saw another strong order intake momentum. Nordex delivered 2.2 gigawatts in Q3, marking a 26% increase in megawatt terms and 27% growth in order intake value year-over-year. This translates to EUR 2 billion in value from Nordex across 16 countries with most projects coming from Europe, primarily Germany, North America as well, particularly Canada. Pricing remained stable and has been stable now for quite some quarters. Let's move to the next slide, the order book. Driven by strong performance across all segments, our total order book reached EUR 15 billion by the end of the third quarter of 2025. Turbine order book grew by 36% year-on-year and stands at EUR 9.3 billion end of September. Most of these orders will be installed in Europe, followed by North America, here mainly Canada, Latin America and other international markets. On the Service side, our order book increased by 20% year-on-year. This growth is a direct result of the expansion of our turbine 2 years ago, which now translates into a recurring service revenues. Let us move to the Service business. Looking at the third quarter of 2025. I am pleased to report that our Service business has continued to improve faster than expected and surpassed the 18% EBIT margin line already in Q3. Service revenue continued to grow at a high-level year-over-year reaching EUR 219 million in Q3 '25. The share of service sales now accounts for approximately 13% of the total group sales. As we have outlined previously, EBIT margins are on a clear upward path. In Q3, our Service EBIT margin reached 18.6%, continuing the steady improvement we've seen over the past quarters. Let me also highlight a few key operational KPIs. Average availability of our wind turbines and the service remained high at around 97% and the average tenure of our service contract continued to be around 13 years. Let's move to the next slide, our installations and production figures. Installations were up by 28% year-over-year, reaching around 2.6 gigawatts in the third quarter of '25. In the current quarter, we installed a total of 422 turbines with the majority of installation occurring in Europe, followed by Latin America and North America. On the Production side, we assembled around 2.5 gigawatts of nacelles, corresponding to 428 turbines. Blade production in units was down around 25%, mainly driven by temporary delays at our supplier factory in Türkiye. And now I will, as always, hand over to Ilya to go over the financials.

Thank you, José Luis, and also welcome from my side. And again, as always, I will start with our income statement. In the third quarter of '25, sales amounted to around EUR 1.7 billion, broadly in line with the same period last year. Sales, as we've mentioned it, were held back by project scheduling mix and temporary supplier-related delays in Türkiye. We again further improved our gross margins, reaching 28% in Q3 after 24.8% in last quarter and 21.6% in the same period of last year. As a result, we delivered an absolute EBITDA of EUR 136 million in the third quarter, nearly doubling the EUR 72 million achieved in the same period 1 year ago. This corresponds to a further improvement in our EBITDA margin, as we've mentioned several times, reaching 8% in Q3 2025, up from 5.8% in the previous quarter this year and 4.3% in Q3 of last year. On the back of that performance, we closed the quarter with a positive net income of EUR 52 million compared as José Luis mentioned it also EUR 4 million in Q3 2024. With net income already totaling EUR 91 million for the first 9 months of 2025, we're confident that we will deliver a robust full year result and hence, exceeding last year's net profit substantially. And with this, let's move to the balance sheet. Looking at the balance sheet, the overall structure remains largely unchanged compared to the end of 2024, reflecting a similar and, I'd say, robust financial position. We closed the third quarter with a strong cash position of around EUR 1.4 billion, and the working capital improved to minus 8.2%, and that is in line with our internal planning and targets. And for the full year. Of course, we stand behind our guidance of below minus 9% and think we can go even beyond. The equity ratio reached 18.3% at the end of Q3, showing steady improvement over Q2 of '25, 18% and year end of '24, which was 17.7%, underpinned by the strong net income development. And finally, let's have a closer look at other balance sheet KPIs, how they have developed. Overall balance sheet figures continue to perform well in the third quarter of this year, extending the positive trend we have seen throughout the year. Operating performance in the third quarter led to a further increase in net cash, which totaled EUR 1.073 million at the end of the quarter compared to EUR 583 million, in the same quarter of 2024. Again, the working capital ratio at the end of Q3 stood at minus 8.2% or in absolute terms, minus EUR 594 million. And that brings me to the cash flow and CapEx slide, which is the last one for me. Here you can see that the cash flow from operating activities stood at EUR 180 million at the end of Q3, reflecting the ongoing and explained robust operational performance of the company. We generated positive free cash flow of EUR 149 million in the third quarter compared to last year's quarter, which stood at EUR 159 million. Looking ahead, we expect to maintain positive free cash flow generation in the fourth quarter, depending, of course, on a few factors, order intake and working capital movements. We anticipate, again, without guiding their specific, figure that the company could add another EUR 200 million to EUR 300 million in free cash flow in Q4. CapEx spending was at EUR 34 million for the quarter, slightly less than the previous year quarter. Since the beginning of the year, so for the 9 months, CapEx totaled EUR 97 million. However, we would expect CapEx to further increase towards the end of the year and to continue moving in the direction of the around EUR 200 million we have and continue to guide for the full year. Our main investment priorities remain largely unchanged with investments primarily in blade and nacelle production facilities, tooling for installations and transport. And with that, I would like to hand back to José Luis for the guidance slide.

Thank you, Ilya, for walking us through the financials. Again, based on a solid 9-month performance and the review of our forecast for the remaining of the year, we now expect 2025 to register a significant step-up in profitability compared to 2024 levels, bringing us very close to the medium-term EBITDA margin target of 8%. Reflecting a strong service EBIT margins and solid project execution, we have raised our EBITDA margin guidance to a range of 7.5% to 8.5%. While we are not issuing formal guidance on free cash flow, we remain confident in our ability to deliver another year of robust free cash flow generation. All other elements of the guidance remain unchanged. Before I'm handing over to Anja to open the Q&A. I would also like to take a moment to thank the Nordex team for their consistent effort and commitment, your work is truly appreciated, and we are now able to see this hard work also in our financials. Also want to thank our analysts and investors for your continued trust and support. It means a great deal to us. We will try to continue to deliver on our promises. And with this, I'm handing over to Anja to open for Q&A.

Thank you, gentlemen, for leading us through the presentation. I would now like to hand over to the operator, to Moritz to open the Q&A session.

[Operator Instructions] And the first question comes from Vivek Midha from Citi.

I hope you can hear me well. I have one question and one follow-up, please. My question is, is just a broader, maybe more strategic question than just around '26. But your midterm margin target has been around 8% and you hit that for the quarter, guiding that for the full year. My question is really around where we go from here. Beyond just further volume developments and movements around the cycle about perhaps a new level, are there any further company level drivers that you see that can maybe support your margins further in the future? I mean, it would be very interesting if you're thinking about what might be the right timing for maybe considering a new midterm target to supersede the existing one.

Thank you, Vivek, for the question. As somehow, we mentioned as well in the ad hoc call, give us some time. I think -- we are confident that we can repeat another year in a good year in order intake to support 2026, but we still have a huge amount of orders to be sold in the remaining of the year. Of course, the biggest drivers for midterm are volume and gross margin per unit and gross margin is a function of the price in the marketplace and the stability in the cost. And that's as far as we can go, if all things being equal, yes, directionally, '26 could eventually be better. But there are many ifs, all things being equal, and we need to keep this good execution, the supply chain stability, this order momentum and the rest, we need to wait until February to talk about '26 and to talk about the future.

Understood. Just following up on that, and then I'll ask my other question. I guess my question was more broad around the transformation. You've done a huge amount of work to transform the group. You obviously, rebalance the cost base and so on. Are there any other initiatives that you're working on at the moment? Or are you generally happy with how the cost base looks, how the structure of the group looks and so on.

We are super focused in our main value stream in technology, quality, supply chain stability, delivering products on time and with quality with our customers. So we enhance our customer base that will repeat business with us. That's our daily job, and I expect this will continue to be a daily job in the future. There is no any other strategic initiative ongoing other than keep enhancing our mainstream business.

Understood. My final follow-up is just around the CapEx guidance. I think you said that we should move in the direction of that EUR 200 million CapEx guidance, clearly, with just below EUR 100 million. Could there may be a bit of a push out of some of that CapEx spend to 2026? I'm just trying to reconcile that step-up in CapEx implied in the fourth quarter, which is quite meaningful relative to the commentary suggesting EUR 200 million to EUR 300 million of free cash flow in Q4.

Vivek, that's a very fair question. Yes, we have been discussing with all folks, especially in operations about the final stretch of the year. And of course, most is happening now. But I think, if anything, we will fall a bit short on that CapEx rather than overshoot it. So the assumption embedded in your question is there could be a push out? Yes, there really could be. I wouldn't say order of magnitude, but it's not unlikely.

And the next question comes from Ajay Patel from Goldman Sachs.

I guess I have really 2. I'm trying to think -- you're largely a European dominant order backlog. And I'm just kind of thinking forward, outside of the pickup of Germany, where do you see additional pockets of growth? The other thing is the business has changed quite a lot over the last 5 years. To what degree is the manufacturing footprint rightsized with the existing delivery footprint? And then just thinking maybe a bit longer term, right? We had a medium-term target, but we still do have a medium-term cost target of 8%. But what is the right margin for the business given all the experiences we've had over the last 5 years, Is it a bigger number? What are your aspirations? And if it's not driven by volume growth, given that picture has been painted, is it more from the cost side?

Thank you, Ajay, for the questions. I would say, yes, our backlog relies majority in Europe, and we are tapping as well the German increase in demand that is so desperately needed to improve the energy cost for the country and to improve the resilience of the energy supply. Other than Europe we are -- we have been, and we are very successful in Canada. And we are committed to go back to the market in U.S. with our traditional market share in that market. Today, we don't have sufficient visibility to tell you how much volume is expected from the U.S. But for sure, sooner or later, we will harvest our share in that market. Our small share, not -- we have not the ambition like in Europe. We have a modest ambition in the U.S., but we will -- the U.S. will play a role for us. We are as well active in Australia, and we still competing -- struggling, but competing in Latin America and South Africa against Chinese competitors. Regarding supply chain, I think we have the right supply chain for the current market conditions, is -- it is flexible enough to adapt to a different macro scenario, name it duties, name it Net-Zero Industry Act, name it trade war and so on. So it's not the time in my view or in our view, to put all the eggs into the most competitive supply chain we see with the view of today. I think we need to take a long view to understand how the dynamics in the world are playing and how to hedge the best possible way to a changing world. Are we fully prepared for any major disruption? We are not. Are we taking that into consideration that disruption might come? Yes, we are taking that into consideration. And that's why we have several configurations to deal with different scenarios. And your third question in the long term, of course, we always won better margins for our business and for our company and for our industry. I think our industry is very competitive, has proven the ability to deliver the lowest cost of energy in most of the geographies where we operate. And we deserve recognition for that and for the impact we have in energy independence and the resilience of the energy system. But you know very well that this is a market dynamic. And the key factors are volumes of the market, market share, prices that drive prices and costing. So where this market is going to go, I think the market will tell. I don't think I can give you more visibility than the one I have 9 months ahead, which is why we issued the guidance in February for the year, we will do the same in -- for next year. So the current view we have is we are confident that we see moments of stability and all things being equal, we should be slowly improving year-on-year, but this is as far as we feel comfortable to go.

The next question comes from Tore Fangmann from Bank of America.

Just one from my side. Your rotor blade output came down year-on-year, which was connected to the issue in Turkey. How confident are you that this does not impact markets outside of Turkey? And how do you think about this going into 2026 when you think about timings in your supply chain, but also cost impacts into '26?

No, thank you very much for the question. I think for 2025, beginning of the year, we were spotting that this might be a risk, and we provided for. Finally, we managed to deal with the impact in '25. As we mentioned in the call, we are, as we speak, negotiating with customers, with government operationally as well how to bring blade production in Türkiye back on track. I would say, global deliveries, I can confirm that will not be affected. So this is Türkiye for Türkiye. Nonetheless, Türkiye for Türkiye, it might affect. It might affect the revenue. It might affect somehow the profitability of next year, but it's a Türkiye topic. We are working around the clock to restart blade production in Turkey and negotiating with customers and with government and with different stakeholders, the best way forward. One key important aspect to mention is that we are fully committed with Türkiye. We are fully committed, not just to deliver these blades as soon as possible for the projects that we sold. We are fully committed to invest in Türkiye for the long term because it's a country with sustainable volumes where we are market leader, where we have a huge brand reputation, a very good team with the ability to deliver, and we plan to stay doing business there in the long term. Short term, we will figure out how to deal with the situation in the best possible way for all stakeholders.

Very well understood. Is there any way to quantify a potential risk going into '26? Or is this too early to say?

It's too early to say because -- it's too early to say, and I wish it could be more transparent. But as this is a moving target and when the negotiation is ongoing, I prefer to be prudent. We will give you more light in the '26 guidance.

And the next question comes from Richard Dawson from Berenberg.

Two from my side. Last week, you mentioned that you could see financial costs start to reduce as the financial health the company starts to improve. So it looks like that started in Q3 or really actually started across this whole year with expenses now about EUR 20 million a quarter. And do you see this going lower next year? Or is this an appropriate run rate for sort of quarterly assumptions going forward? And then second, what's the current status of the factory in Iowa in the U.S.? I believe the last update was that it was ramping up to qualified turbines for the U.S. market. Is that still the case?

The second question I take it is, yes. We are assembling components and nacelles if -- to qualify for the U.S. market and the ramp-up is as per the plan. So we haven't changed our plans for the Iowa factory. And regarding the first question, you take it, Ilya.

Yes, I'll take the one on the financial interest one. So -- it has started this year and that's the short version. It started this year and will continue to improve next year because the costs largely here are driven by what we have to pay for our performance warranty bonds, down payments bond and the like, which is the large bond line we have. And the interest we pay for that is, as I said last week, and you mentioned it, is against the risk profile of the company that has substantially improved. So now we're rolling over basically bonds from existing facilities into new arrangements. Those bond costs are typically -- not typically, all of them are cheaper than the ones we're getting out the door. But I'd say the larger effect we will see next year. So what we've seen this year or until so far is a start, but that should continue well into '26 when we believe that the full things will be rolled over, always like-for-like. So it means if volume increases further, we will need more bonds than of course, financial interest will move with that proportionately. But on a like-for-like comparison, I repeat what I said last week, we're getting substantial relief on the cost side there.

And the next question comes from Constantin Hesse from Jefferies.

Sorry, I was muted on my own line. Just a quick -- so staying with Turkey for a moment. Just trying to figure out what is the worst-case scenario here? So I mean, if TPI indeed, I mean, probably goes bankrupt, who takes over that factory, right? I'm just trying to figure out what's the worst-case scenario? How could this potentially look like for you? Does like a third party take over that factory, would you have to take over that factory? How do scenarios look like?

Let me figure out how I can be transparent without not being fully transparent because that could be contraproductive. We are working out, as we speak, to set up in-house blade plant to start producing blades somewhere mid next year. And we are in conversations to find, if possible, a way to produce blades as well in the existing facilities. And depending on the success of -- and the speed of both projects that will determine the quantities of blades available for the projects and that will determine the revenue, the profitability and the liquidated damages, if any, of those projects next year. But as we speak, we are building in-house plant, and we are negotiating with some stakeholders, safe process to restart blade production there.

Okay. Understood. This is great. Next question would be just on the margin very quickly. José Luis or Ilya, if -- so your comment was, look, next year, right, you're probably going to have a little bit more volume. So far, supply chains are looking pretty good. So potentially next year, it could look better in terms of the profitability. Just to manage expectations, right? The original guidance this year, including the contingencies, it was 5% to 7%, 6% midpoint. The commentary that you're giving now because I'm assuming you're not going to suddenly get rid of the contingency, a procedure next year, you probably won't include all these contingencies again next year. So based on your commentary, does that mean that we obviously could look -- so thinking of a potential guidance next year, right, obviously, without giving one, but just trying to figure out the point that we're leaving. We're not going to be leaving from this new guidance. So when we look at your commentary, should we use the previous guidance as a result, so maybe assume a 7% midpoint guidance next year, including these contingencies? Or is your commentary already based on this new guidance?

I would say -- there is, as we mentioned, there is many ifs. So when if is the order intake in Q4. Are we confident? We are. But so far, year-to-date is less volume than last year. So we still need to sell a lot to match and eventually improve. Second is stability. But without trying to confuse, but to bring clarity last year, what you name contingency, we build contingencies for Türkiye. And next year, in the guidance, we need to build contingencies for Türkiye. And the impact of those contingencies might be different in '25 than in '26. And this might affect the profitability in a different way, '25 or '26. Other than this and other than -- and all things being equally, definitely, we should be able to see directionally a better performance. I don't know, Ilya, if you can...

I mean, I think [indiscernible] question, I think you answered it. [ Possible ] if you allow me, should the all things being equal, is the midpoint moving to 6% to 7%. I think that's the question that Constantin was asking us. And we have to ask for patience until we come back to you with that new guidance. But I think the statement Constantin that we're making is as far as we can see, which subject to order intake seems stable or as far as we can see. We continue with our statement, which we have given at the beginning of the year and throughout the year, next year should be all things being equal, better than this one because this now a steady-state company in that sense. And you have always the unforeseen like the Turkey topic, but this is how we see the company.

Understood. No, that's clear. And then maybe just lastly and let's just quickly just to understand this a little bit. I would have expected maybe a little bit more in terms of your order book in Service. I think Service order intake was something around EUR 300 million in Q3, which sounded a little bit low. I mean maybe this is just timing. I don't know. I haven't really necessarily looked at the order intake overall very often. But just wondering, is there a particular way to look at it? Are there any concerns? Or has orders -- have orders slowed for some reason? Or how should we think about this?

No. I think no concerns. I think the renewal rate is the one we want. And in quarter might be higher, might be lower and the order intake that we landed in Q3 is good. It's associated with good Service orders, and that trend is expected to continue. So no changes in our view. I think Service business should be growing very high single digit year-on-year, and our view hasn't changed.

And the next question comes from John Kim from Deutsche Bank.