Nordex SE ($NDX1)

Ladies and gentlemen, welcome to the Q1 figures 2026 Conference Call. I'm Lorenzo, the Chorus Call operator. [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.

Thanks, Lorenzo, and a very warm welcome from the Nordics team in Hamburg. Thank you for joining the Q1 2026 Results Management Call. As always, we take -- we ask you to take notice of our safe harbor statements. With me are our CEO, Jose Luis Blanco; and our CFO, Dr. Elia Hartman, 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 Jose Luis. Please go ahead.

Thank you very much for the introduction, Anja. As as well on behalf of the management Board, would like you to -- welcome to our first quarter result of 2026. Let's start with a recap of the first 3 months of the year. Overall, we are pleased to report that the first quarter of the year represents a positive start into the year for Nordex, generally in line with our expectations. We continue to execute well operationally deliver further margin improvements and entered the year with a strong financial position. We maintain a strong presence in our core European markets, with Europe representing 97% of the total project order intake Germany remains our most important market, followed by Turkey and Sweden. Project order intake amounted to 1.9 gigawatts, which is slightly down year-on-year. And this development needs to be seen in the context of a particularly strong comparison base in Q1 and Q4 of last year. More importantly, the underlying demand environment and pricing remains stable. Secondly, we continue to deliver solid operational performance across the businesses. The total revenue reached EUR 1.6 billion, 11% growth year-on-year. Project revenue accounted for 87% of total revenue, also growing by 11%, driven by consistent progress in execution and deliveries. Parallel, service revenue represented 14% of the total and grew as well 11% year-on-year. Thirdly, profitability improved further, in the first quarter. We achieved an EBITDA margin of 8.2%, reaching levels above 8% already in first quarter. And fourthly, our cash position remains very solid. At the end of the first quarter, we reported a cash position of EUR 1.8 billion. Working capital continued to normalize, moving back to around minus 9%, which is consistent with the seasonality of our business. On the strategic side, we continue to see supportive market fundamentals, particularly in Europe and in Germany. Overall, the first quarter confirms that we are on track to deliver on our guidance for 2026. We have started the year with improved margins, continued revenue growth, a strong financial position providing a solid foundation for the quarters ahead. And with this, let's move a little bit more to next slide for details. First quarter of 2026 saw order intake in line with our expectations. In Q1 '26, turbine order intake totaled EUR 1.7 billion, corresponding to 1.9 gigawatts. Order were received from 13 different countries, average selling price increased to $0.91 million per megawatt compared to $0.87 million per megawatt in Q1 '25. This increase was driven by regional mix and project scope. From a regional perspective, Europe accounted for 97% of the order intake. And as always, while we are not providing specific guidance for the year, which remain comfortable in our order intake momentum for this year. Let's move to the next slide, the order book. Let me briefly comment on the development of our order book. At the end of the third quarter, our combined order book amounted to close to EUR 17 billion, reflecting continuing momentum in both segments. The turbine order book stood at EUR 10.5 billion, with most orders scheduled for installation in Europe, followed by North America, rest of the world and Latin America. In the Service segment, the order book increased to EUR 6 billion. By the end of the quarter, almost 14,000 turbines were covered by service agreement corresponding to an installed base of 49.4 gigawatts. Overall, the order book development supports planning visibility and reflects the expansion of our installed base over the past years. Let's talk about the service business. Looking at the first 3 months of '26, I can confirm that our service business continued to develop positively. Service revenue increased to EUR 218 million and service sales represented around 14% of total group revenues. At the same time, service EBIT margin improved further to 19.2%. As we have mentioned before, the margin recovery in service is not linear, but the underlying trend remains clear and steady. This development is supported by an expanding service order book contract tenor and continued discipline in execution. Rationally, fleet availability remained stable at around 97% and and the average tenor of the service contract increased to over 13 years, supporting visibility and stability in the service business. Overall, the first quarter development confirms the continued improvement in service margin progressing towards our midterm EBITDA margin target of crossing 20%. Let's move to the next slide, our installation and production figures. Installations increased to 227 turbines across 14 countries, up 10% in megawatts year-on-year, installations were mainly focused on Europe, followed by South Africa. At the same time, turbine production increased to 249 units compared to 209 in Q1 last year, largely tracking project scheduling and delivery requirements. Bay production remained stable in the quarter despite temporary delays at 1 supplier facility in Turkey. Overall, operationally, the activity in the first quarter developed in line with our expectations, supporting execution of readiness for the higher activity in the quarters ahead. And now I would like to hand over to Ilya for the financials.

Thank you, Louis. Welcome also from my side. And as usual, I will guidance through financials in starting with the income statement. So as mentioned by Jose Luis in the first 3 months of this year, sales rose by around 11% to EUR 1.6 billion from EUR 1.4 billion in Q1 of 2025. This development was primarily driven by higher activity levels in both our project and service business. We again further strengthened our gross margins reaching 29.4% in this first quarter compared to 27.3% in the same period of last year. As a result, we generated an absolute EBITDA of EUR 89 million, which is higher substantially than the EUR 35 million in the first 3 months of 2025. This development translates to further EBITDA margin improvement from 5.5% to 8.2% year-on-year. On the back of this operating performance, we reported a net profit of EUR 54 million for the quarter, representing a substantial improvement versus EUR 38 million in Q1 of last year. And with this, we already move on to the balance sheet. Looking at the balance sheet, the overall structure remains on a comparable level when looking at year-end 2025. We ended the first quarter of '26 with a cash position of EUR 1.8 billion, as already mentioned by Jose Luis as well. And then the working capital normalized from minus 12.4% end of the year to minus 9% end of this past quarter. Equity ratio improved and reached 19.4% at the end of the first quarter. And then of course, this development is largely driven by a further increase in net profit. Now together, let's have a look the other balance sheet KPIs on the next slide. So the net cash -- the result reached EUR 1.5 billion at the end of the quarter and remaining at an arguably strong level in a quarter, which is usually softer working capital ratio, one more time at minus 9% or in total number, EUR 690 million at the end of the quarter, which is a reflection of the normalization in working capital usual for for Q1. And with that, let's go to the cash flow and CapEx slide. Cash flow from operating activities before net working capital stood at EUR 175 million. At the end of the quarter, and again, reflecting the strong operational performance of the company with the working capital normalizing as I just said, cash flow from operating activities after working capital amounted to minus EUR 69 million. At the end of the quarter, EUR 1 million, of course. And as a result, we generated a negative free cash flow of minus EUR 98 million in the first quarter of this year. However, for the full year, we continue to expect a solid free cash flow generation. CapEx spending amounted to around EUR 27 million in that quarter, and this is pretty similar to the ones in the previous year. Our investment focus remained largely unchanged compared to last year with investments primarily in blade in the cell production facilities and tooling for installations and transport. And with that, I would like to hand it over back to Jose Luis for the guidance slide.

Thank you very much, Ilya. And based on a healthy first quarter, I would like to confirm our guidance we set at the end of February and that we expect profitable growth to accelerate in 2026. This is, of course, assuming no material disruption in the market due to recent geopolitics development and market normalizing at some point during the first half of the year. Our guidance for 2026 is as follows: sales between EUR 8.2 billion and EUR 9 billion, meaning top line growth between 9% to 18% year-on-year. EBITDA margin in the range of 8% to 11%. We believe that midpoint plus is the most likely outcome as of today. working capital ratio below minus 9%. CapEx approx EUR 200 million. Regarding free cash flow. As Ilya mentioned, we don't provide formal guidance. However, based on the building blocks we have shared, you can likely conclude that we are positioned to deliver another solid free cash flow year. And with this, handing over to Anja to open for Q&A.

Yes. Thank you, gentlemen, for the presentation. Lorenzo, you can now please start with the Q&A.

[Operator Instructions] The first question comes from the line of Ajay Patel from Goldman Sachs.

I just got 2 questions, if I might. If we look at the quarterly performance, like the first quarter, despite being a relatively low revenue quarter, has delivered quite a sizable increase in margins. And if you kind of extrapolate that into the rest of the year, it would imply a bit more than the midpoint statement that we just said over the course of the presentation. So I was wondering to what degree you can maybe point to is how the profile of margin will evolve over this year. Not giving a forecast, but just understanding why that if you have a relatively low revenue quarter this way, you've got a good margin. But then the future quarters should have sizable operational leverage, which should lead to quite substantial increase in those quarters, too. So if you could help us with the dynamics that would be really helpful. And then the second question was more around just more policy than anything else. In March, there was a paper out, which was on the EU Industrial Accelerator Act? And it had some restrictive origin requirements. I just wondered if you could just talk to that and how that may affect your portfolio, if at all?

Yes. Let's do this to Ilya. I think regarding the first quarter, and as we always mentioned, majority of the activity is always in the second half of the year and this is a project business. So the composition of the marketing changes with scope, with quality and quantity of the projects you are executing in your planning phase. So yes, you might get some general level indications, and this is why with the information we have as of today and with the disclaimers that the geopolitics get settled in the first quarter, in the first half of the year, we think we can do middle point plus. So we see slightly more chances than risk to set the midpoint. But to go more into details, I don't know, Ilya, if you can provide more light.

I'd say probably combining in one response, hopefully, too. So a, to the profile, I think for calibrating and I think we did that on the full year call. yes, a step up in total in percentage numbers in the profitability probably to a similar pattern, different absolute terms, obviously, than last year. So that's how I would see the trajectory. And second important points on what it looks today in the actions Jose Luis have made, I would just make one addition. As you said, A.J., it's a bit of a small weaker revenue-wise quarter. So this is why service margin outweighs and outperforms a bit. So I don't think you can necessarily extrapolate that first quarter to the rest.

Yes. And regarding the industry, EU Industrial Acceleration Act, I think it's a policy in the right direction. Our sector, as everybody now understand is super critical for not only to fight climate change, but to deal with affordability and we saw that in the auctions in Germany, to deal with a resilient energy market to have energy sovereignty and to have technology sovereignty as the role that this sector plays to national security and critical to critical infrastructure. So what EU industry acceleration is somehow trying to address is to make sure that roadblocks are removed to unleash demand growth. A good example was a very successful case in Germany. So hopefully, this acceleration act will provide some leeway as well for other countries to follow and somehow will put in value what our sector brings to governments and to society in terms of affordability, resilience and autonomy.

The next question comes from the line of Costantin Hesse from Jefferies.

First of all, congrats on another really strong print. I've got 3 questions, please. The first one related to the Middle Eastern conflict. So I think last week, you were in an article in recharge and this morning, I spoke to Elia as well, and it doesn't really seem that you guys are seeing much headwinds currently either in terms of supply chain or inflation at the moment at least in Q1, but Q2 doesn't really seem to be an issue there as well. So I'm wondering you're obviously assuming that you can do midpoint plus if the situation ends in the first half. So what exactly are you seeing in Q2 which would change that view if this conflict continues into the second half? That would be the first question.

I mean as in a project business is everything is about risk and chances, of course, this situation has had some some impact that we were able to deal with the changes in other areas of the business. And regarding I would say, all things being equal, we should be able to deal with that as well. For us, the biggest concern is security of supply. If one thing is price, what you procure, this is quite volatile. There are certain cost factors that regardless what the price in the market, vessels were contracted. So the high prices in the market might not hit you in your P&L, although might have some impact. The biggest concern is if the situation prolongs for long we might start to see disruptions in supply, which will affect our ability to deliver. And then there is a knock-on effect that might, in fact, more '27 than '26, which is inflation that this will potentially bring to the markets where we operate. but not that much in '26, potentially in '27.

Understood. Okay. Question number two, then on order intake for the remainder of the year. So you obviously made a statement in the presentation where you're confident about the sustainability of the trajectory of order intake, assuming the U.S. does not happen this year. Are there any markets in Europe, which are other obviously than Germany having lower auctions compared to last year. Are there any other markets that are potentially underperforming and would lead to a view where you would tell yourself that order intake could potentially be below last year? Or are basically all markets performing pretty well, and therefore, we should expect probably flat orders, assuming no change in the U.S.

I would say, with the typical disclaimer Constantin that we don't guide outdistake, we see, I would say, all regions, we are organized performing business as usual. Let's put it that way. Maybe some challenges in Nordics due to temporary low electricity prices that materially speaking, this could be compensated by slightly more volume in other regions. So I will use a part, I will consider the situation stable.

Great. And then last question. Now this one is a little bit harder to answer and I get it, but I'm just trying -- I just want to get your view on this. So if Germany really transitions to the EEG 27 the way it currently is, meaning we would go into contracts for difference, redispatch, you wouldn't be awarded for that anymore if you have -- if you're curtailed. So clearly, the return environment is getting worse for the developer. I understand that Germany wants to auction 10 gigawatts per anuum until 2032. But I'm assuming that if the developer isn't getting a good return, we won't see the 10 gigawatt. So I'm trying to figure out -- how do you think the market will evolve from the current feed-in tariff to the contracts for difference. What are you hearing from developers about keeping these volumes running at these higher levels, i.e., 10 gigawatts, would be great to get your view on this.

Yes. No, our view and our strong advice to policymakers is to think well through the changes. So the changes can be implemented in a way that volumes are not delayed because on the positive aspects, we saw the beauty of bringing permits to the market, auctions were reducing prices quarter-on-quarter, contributing massively to one of the key concerns of all government, which is affordability. So we are part of the affordability. We are part of the resilience of the strategic autonomy. So if you delay that, that's not good for Germany. So I hope that this is taken into account. But you name it. I think big times that persistent change from Mobile A to Model B. There are going to be adaptations needed that might or might not affect volumes. We saw the opposite in -- a few years ago with -- when German implemented the overarching and overriding public interest, which accelerate the market. So hopefully, this is taking into account by the policymakers and volumes are somehow stable. I mean the redispatch discussion is a good one to have, who carried up risk, the developer or the system. If you are aiming for net-zero, paise, the end game is clear. So maybe it's not very smart to push that risk to the developers because it's going to be more expensive for the system because they need to price it. So I think hopefully, they will take this into account. And hopefully, this change has to compromise the speed of the energy transition, which, by the way, we are late in our overall targets across Europe and in Germany as well. Ilya?

Very good. But I think I see it the same way. I think from those 2 points you mentioned, Constantin in the legislative process. I I'm not so concerned about that they would be touching volumes, the total volumes of the market. Could there be some outlines of people being unreasonable or some irrational behavior when bidding into the auctions. Yes, that can happen, always happens. But by and large, it is what Jose Luis said, if you -- and that's not a German discussion. I mean, go back to any given U.S. project. If you have a PPA, where your offtaker takes as produced, you offer price A. If the offtaker wants you to bear the curtailments and the risk of the uncertainty of the curtailments, you get a price of a plus x. So the market should resolve that the underlying question for policymakers is whether it's cheaper to bear that on the system directly or through indirect effects on bidding. But I think on the total volume, that again provided largely rational behavior that shouldn't change. And the same is true for the CFE mechanism, if until now you had an opener call for -- to go to direct marketing. And you let's say, I don't get that in the future, well, you will have to bid initially your auction a bit with a different level. So pricing will basically adjust for whatever the legislature decides

And we should not forget that this journey requires grid deployment and renewables deployment at great scale. So I encourage Mark policymakers to accelerate the grid deployment to deal with the curtailments than to decelerate the capacity deployment of Venoco, which is going to delay on our main KPEs, on net-zero, on resilient, on affordability, on everything.

The next question comes from the line of Vivek Midha from Citi.

Thank you very much, everyone. I have a couple of questions. I'll go 1 at a time, if I may. The first one is a follow-up around your comments around cost inflation, potentially being more of the 2027 topic than '26. I was wondering if you could give some color or commentary around where you see your pricing power. Customer returns are maybe a bit more squeezed than where they were post-COVID, we've seen the auction price in Germany fading. But then on the other hand, turbine prices have spiked. We have, of course, still a pretty strong German market in volume terms and so on. I mean how do you see how easy it will be to push on higher prices given that cost inflation?

No, thank you for the question. I mean I think it's Q1. What I can comment in Q1 that Q1, we are happy with the quality of the intake for the quarters ahead for 2027, it's too early to comment on that. But you name it, I think if oil is costing more, logistic might cost more, resins might cost more. And then the rest is what are the other levers. The other lever is what is the price allowable price for the market and this is supply and demand and competition. We will try to do our best to capture the best possible prices as it should be. And then there is efficiency gains and productivity gains that we need to sit further to deal with this margin pressure that we might have provided we cannot pass those cost increases to -- directly to customers.

That's great. My other question was just a follow-up on the free cash flow. In general, completely agree that working capital to sales should generally improve from here seasonally, given this is Q1. But the payables line does still stand out as quite a bit higher than where it was, say, 6 months or so ago. So is there anything we should bear in mind how that particular line should develop? Or should it stay at this sort of level for the coming quarters?

I think this one, I'll take Jose Luis. No, that's a good observation, Vivek. However, this is just the size of the business and how the manufacturing production, everything is lump, so to speak, in general terms. And again, when we're time without guiding anybody, I will repeat my statement from the year call that we clearly expect a conversion rate more normal than last year, not that high, but the conversion rate of EBITDA to cash of around 50%.

The next question comes from the line of Richard Dowson from Berenberg.

I've got 2, please. Firstly, on services. There was another step-up in service order intake this quarter to what looks to be a new record level. And is this a reflection of a better renewal rate than before? Or is this more just a generally growing installed base within projects? And that's my first question. And then second one, more of a broader question on the industry. ASPs looked elevated this quarter. I appreciate there's some geographical scope in there and why it's a bit higher. But I guess the main thing is it looks like pricing discipline has been pretty well maintained within Europe. What are your views on the industry competition? We've spoken about the reentry of [ Gamesa ] into Europe, but what about some of the Indian OEMs that are looking to reenter or to enter the European market.

Richard, for the question. So I would say services, I mean, we are steadily growing that business and improving profitability but improvement doesn't happen overnight. It's a low pace of improvement, let's put it that way. We this expect to continue, provided things keep working as they are working. We are super happy with the technology. So I mean the service business, of course, the main drivers is reliability on the technology and the efficiency that the growth brings and dealing with potential inflationary pressures we might have on people and on certain materials. So we expect the journey to continue, but a steady pace. I think there is -- should not be expected big jumps. We always say high single-digit, low double-digit growth and whatever profitability that this growth might bring to the business for things being nimble. Regarding the industry I mean ESPs, as we always mentioned, an indicator, which is an indicator that doesn't reflect, in fact, the quality of the business and is driven mainly by -- in this case, I cannot disclose the quality on the order intake, but we are happy with the quality of the intake, has not deteriorated. But key contribution for the SPS geography and product mix. Regarding how this could affect in the future with newcomers. So hopefully, the market will grow in the areas where we operate to accommodate the newcomers and long term or medium term. And I think short term, the market is in execution focus. The volumes that were auctioned need to be contracted, needs to be executed. So I don't see I mean, with all disclaimers, and I my fingers, but I don't see customers willing to change the way they operate until we process this big volume that was auctioned in that contract this might change longer. And so far, we don't see it.

The next question comes from the line of Sebastian Growe from BNP Pariba.

Three for me. The first one would be on mix, and we had the debate before around the gross profit margin of more than 29% in the first quarter. So I was wondering if there were any onetime effects or if you would consider the regional mix in any particular way, favorable? So maybe you could just quickly comment on that and then I have 2 more.

I think it's probably a notch to the high end. So I wouldn't expect that to be always recurring on that level. Again, one more time, smaller quarter and more service helps the profitability. So I think the trajectory is clear but it's probably for a single quarter, which I always would ask us not to look too much at quarters. So I wouldn't read too much into the number, but at least ballpark and no specific one-offs. No specific one-offs either way.

Okay. That's good -- and the next one on provisioning. So there was around EUR 45 million in the first quarter. I think it's not necessarily an outlier, but I just wanted to check in whether there's any change to what you had planned for. I think you had been guiding previously to 3% to 4% or so. But if you could just comment on that one area?

Yes. Good observation. Thank you, Sebastian. That gives me the chance to talk about that. Yes, we at a bit of a higher number. But very clearly, we are not -- so the gross additions were basically with that take at 4% when you talk about warranty provisions, and we keep our basic message from the last quarter, especially the full year call, somewhere between 3% and 4%. And yes, you might expect that to -- for the full year go to up to 4%, but not beyond that.

All right. And maybe the last one, just on the volumes, I think over the last 12 months, you have assembled almost 9 gigawatts of turbines. If I'm not mistaken, when you did not provide a gigawatt number as part of your midterm target update. So can you talk about the ambition for the company when it comes to considering probably Europe being about 8 gigawatts or so loan in '26 and that is, however, before factoring in any contributions from from Canada, from the U.S. or from Australia. So I was just wondering if you feel comfortable in talking about volumes and where you want to take this company over the next couple of years?

That a good question. I would say in terms of instability, you need to invest a little bit in overcapacity to have room to maneuver as well as to accommodate to project sales and so on but Yes, the 9 gigawatts, it might change from component to component because the timing and the project demand is slightly different and the overcapacity is slightly different component with different risk profiles. But yes, yes, we are ready to deliver in that ballpark, 9 gigawatts, 10 gigawatts area, yes.

But when you say overcapacity on the one side, you are doing already at a run rate about 9%. So how much would you then have? And then -- but...

It depends a lot, Sebastian in nacelles substantial in place less. It depends, we're going to do a risk assessment of all different aspects that might impact your business, different import these taxes, so on so far future view of what net sale industry might have for your business. So in sales, we have, of course, way more than 10 gigawatts a year in blade ballpark that number.

And last one, then quickly on the blades part because apparently, you were able to then also eagle or set them what you've been missing in terms of their displays by external partners. So how do you see the scope for them also getting better supplies going forward if need be?

That's the intention to phase out low-performer suppliers and to concentrate in internal factories and suppliers with better quality performance. And now the focus is to further grow in India to ramp up Turkey and keep working with our Chinese suppliers in Morocco and in China.

The next question comes from the line of Colin Moody from Royal Bank of Canada.

I have 2, please, if I could. One, on the central costs. So I understand that there's an investment need to support your strong order intake, but it has continued to ramp sequentially for quite a few quarters. Could you help us understand or better estimate what the normalized level should be, presumably, it should begin to flatten at some point? And then my second question, just kind of macro question. On the U.S., I'm just curious to see how your customer conversations are going with your customers right now, what the interest levels are and the holdups especially as we approach at July 4 safe harbor deadline?

Sorry, Colin, we couldn't get the first question in full, I don't know.

I'm not sure, Colin, you asked about kind of of a calibration of a run rate for the investment, the CapEx part?

No. Sorry, apologies if the line is unclear. I was asking about the central cost plan. it continues to ramp as it has done for several quarters. Can you help us understand the unallocated central costs, EUR 130 million of EBIT, what that should levelize and normalize that? And then the second question was just what you're seeing in the...

Yes. second, we got. So you take the first Ilya.

But first of all is basically still ramp-up activity driven increasing of the business. That goes back to you a bit to the conversation that Sebastian and Jose Luis just had in a different shape, which is about the the capacity. So I think if the business develops as good, but within the ballpark of what we're calibrating you, we should be getting lows to at least by Q3, the latest Q4 by our run rate, and I don't think that the increase will be so steep going forward when you compare them, let's say, in the last 12 to 18 months. So not so much more I would expect.

And regarding the U.S., I would say, you need to understand that we don't have the market position we have in Europe and U.S. is investors and yield. Nonetheless, we see substantial commercial activity. most of these commercial activities is subject to certain federal permits that needs to happen to release those final investment decisions. But from now to July, we see very much what the volume of the market would be for the foreseeable future. But I must say that for us, we see a momentum, which is not minor.

The next question comes from the line of Deepa Venkateswaran from Bernstein.

I wanted to follow up on some of the topics we've already discussed. So the first one on inflation. You mentioned that this might be more of a topic for 2027. Given that you've locked in most of the ASPs for your '27 production maybe last year or even in '24, I was wondering whether there is any specific indexation to bunker fuel or raise in costs? And I suppose, given you are producing a lot of your turbines in China and India, a cost of moving fat to Europe, should your customers be willing to bear that? So that was my first question. And the second question was a bit more on the German auction. So I think the recent auction price was also below, I think, at EUR 55 per megawatt hour roughly. And it is now -- I think the last time it was in these levels was probably in 2018 or so. So wanted to just check how you're thinking of pricing because so far, you and the rest of our industry have maintained that discipline. But it seems like developers are maybe losing it a bit. So what is your comments here. I think one of your smaller peers said that he was not willing to lower prices in Germany. So I wanted to kind of take -- give you -- get your take on this topic.

So let's go to the first one. Very much our indexation policy, Iliad can elaborate more, but very much we try to lock what is firm orders. At the moment, we look an order. We try to lock the logistics and the towers to have certainty on the delivery but we don't do for -- so we are not long in fetching fuel for expected order in debt. So the future margins of the volumes that are unsold are going to depend on what is the cost base at the moment we lock the order and the price we can get from the order, which is going to be a typical competition with your -- against your competitors to win the order. And this is -- this is 26%. We are comfortable because 3/4 of the activity, all part is very much locked with contracts, 1 quarter or 1/3 to 1/4 of the activities still needs to be some. And consequently, we will figure out what the margin of this expected order intake is for '26 small portion and for '27 big portion. When we talk about the urban auctions and the pricing and adjusting or not adjusting again, supply and demand. We will try to harvest the best market conditions possible, but we need a prerequisite. The project needs to be buying with win, with the CapEx, with the land lease, with the finance, with expected returns for the customer and with healthy margins for us. We learned painfully in previous years, how they are stating can be for a sector doing irrational things. And I hope that we can make a living all in the sector at the Korian auction passes. I don't know Ilya if you can elaborate a little there is.

I think you nailed it. I think maybe the 2018 comparison with all the respect is a bit school because it was a different system on the subscribed auctions, but still the general trajectory of the direction of the question is it's totally understandable. Nonetheless, let's not forget that the auctions as they stand today, still have an open or upside to the electricity market. So it is not an absolute data point where the auction ends, the developer, the ultimate owner is still entitled with those tariffs to step in and out of a power marketing system in Germany. So that might change with the CFDs. I think we have this conversation early on. Nonetheless, I think you summarized what we call in the full year call. Also, Germany will become a more normal market. It will have oversubscribed supply and demand auctions hence, the whole value chain in Germany that was a bit healthier than in other markets with those set feed and tariffs will normalize.

And then basically, we will have a market with a very good volume but on margins in comparable markets in Europe. But it's a great market to be in. 200 projects. The capillarity you need to be to execute that is you don't build that overnight, you don't lose it overnight. And the German and Central Europe is the highest price for electricity in Europe for several reasons. So you are in a market where electricity is paid more than in Baltics of Nordics or Iberian Peninsula, where there is a huge demand and where the company has amazing capabilities to deliver. So yes, we've always won better auction prices, but I think we can do a reasonable business with the current volumes and auction prices.

The next question comes from the line of Sean McLoughlin from HSBC.

A question on service. You talked about crossing 20% in your comments. I'm just curious as to really what are the drivers and I guess, blue sky, how far above 20 should we start thinking about that's the first question.

Yes. I mean, all things being equal, volume and for volume, you need to be patient. We keep growing 10% every 7 years, we duplicate the business. But the margin will not grow in that proportion. I mean, it's hitting a sink because, I mean, we cannot deliver better margins than the ones we sell. And the ones we sell are I think we cannot disclose in that detail, but margins in services will -- the growth rate, and you see it in the previous quarters is is slowing down as it should be.

And another question just on the service fleet because I'm just wondering if today, if you break down your fleet, how much of your of your fleet steel of the older AWP turbines and how much already is delta? Just on the assumption that I suppose you're getting better margins on turbines or something today.

I would say big majority is now Delta and Delta 4,000, we are losing renewals and the weight of the weight of the will be fleet is decreasing by 2 factors because the overall is increasing. And we don't -- and we lose renewals. So over time, the it will be by the phasing out and being very small portion. Still we have a big fleet under service in Latin America, in Spain in several countries. But the trend is lower AWP contribution over time.

The next question comes from the line of Alex Jones from Bank of America.

Two if I can, please. First, just a follow-up on the EU Industrial Accelerator Act. As you currently understand the draft legislation, would that require any changes in your supply chain to move more into Europe? Or do you see the footprint currently as well positioned? And then secondly, just in your customer discussions in Europe since the start of the Middle East conflict. Has that changed at all, the tone of those conversations with customers? Are they accelerating things due to movements in fossil fuel prices or any hesitation given sort of the inflation and interest rate environment that we're in?

That second is the typical dynamic. So first Industrial Acceleration Act, no changes for our supply chain. We were preparing for that and planning for that to have different options. We might bring some more towers from A to B, and we might produce a little bit more modules in country or country B. But generally speaking, it's not a surprise to us because we were expecting that and planning for that because we always mentioned in the past that we didn't want to have all legs into the same basket. Just planning for having optionalities for the future. So that's regarding supply chain configurations. Regarding customer compensations, twofold here. I think one is great. I mean, everyone is a drama, but for our sector, what has happened or what is happening in in the Hormuz Strait is reinforcing the contribution and the importance to renewals and especially in onshore. The resilience of the countries and to the affordability for consumers and hopefully accelerate electrification. It is true that in the past, many countries were questioning a little bit that might need to consider back gas or is that is gas solution for Europe or all those things, I must say, are very much out of the table, which is only good for our business because then policymakers focus in accelerating accelerating renewals because it gives you a better country, a more resilient country, less exposed to volatility and so on. When you translate this to a customer discussions I would say, the helicopter view is great because your sector is needed and needs to be accelerated. But in the short term, you need to deal with volatility, with costing, with pricing, with margins and so what we're financing, getting the projects bankable and finance, and this might have some short-term impact. I think we should be able to manage that. I don't think this will affect dramatically our sector. What I hear from customers is that a reasonable project in Europe, we're not sure with permits gets filled in almost every country, of course, in Germany, in the auctions over surprised that's not totally true. But over time, the sector is not lacking capital, and PPAs in certain markets are not adjusting in others are adjusting to the new reality. So it depends a lot market to market. But generally speaking, we're not sure is a good market to be.

The next question comes from the line of John Kim from Deutsche Bank.

I wanted to focus in on the second half just a little bit, quite a growth in May cell production in Q1 balance blade's flat. Given what you described around kind of pricing, bunker fuel, resin and outsourcing. What is -- can you give us any sense of kind of safety net backlog that you have in blade supply? And how we could think about kind of Q2 into Q3 given what happens or what we're seeing right now. I mean nobody can really predict the end of a conflict, but if the Strait of Hormuz is not open, when we'll start to see later deliveries or supply chain constraints in the second half numbers? And will it be blades?

Thank you, John. I think the -- I would say the activity in Q1 is mainly driven by high activity last year. So we accelerate the buildup of the stock because the company is a growing company. And at least our view is expected to be a growing company in the receivable future. So strategically, we were anticipating inventory to be in a better position to deliver higher quantities over the quarters, mainly in Germany. And this was advisable to slow down a little bit in Q1 that was on prospectivity normal. Regarding slightly cost increases that we might have in place. But even considering that, we are still committed to the midterm plus in the guidance. We will figure out how to manage in other commodities. In parallel, we are ramping up blade production in Turkey at the same quarter of last year, that factory was reduced in place. and then went into Chapter 11, and then we rescue the assets and are starting up as we speak to previous place. So I'll say business as usual with the typical changes in the models to -- that are allocated to different factories, but we are well equipped to deliver our projects without impacts and that affects blade production, blade production costs and sell cost. Of course, if the situation deteriorates in the second half and you don't have availability of components. I wouldn't say that projects even might survive without LDs and so on, that percentage of completion will be under pressure because if you don't produce, you don't recognize revenue and margin, but too early to say. The assumption is that the factories will work in second half.

Understood. Follow-up question, if I may. If we isolate just your project margins in Q1, very strong year-on-year delivery and expansion here in 360 basis points. How would you characterize that? Is that better profitability on the project deliveries overall? Is there a strong mix effect from the May cell production? And how should we think about that through maybe Q2, given your current outlook?

I would say Q1, I will categorize that that in every project business, you have risk and chances, and risk didn't materialize and chances materialize. This might or might not be the case in the future quarters, maybe some more balanced approach or maybe the trend continues. But too early to say.

The next question comes from the line of William Mackie from Kepler Cheuvreux.

A couple, please. Firstly, going back to the discussion on gross margins. or project margins. Is there any way you can throw some more? Or can you please throw some more color or on the differential between the project margins gross margins you're achieving and the service gross margins, just so we get a sense of mix effects into the year. And on that topic, would you describe your project margins sort of flying at target attitude? Or is there scope for expansion around mix? That's my first question.

Let's do this together. I think Q1, as Ilya mentioned before, is listed at on an EBIT level as the contribution of services. that the service business will expect to grow steadily in the quarters ahead of us. But the contribution of service will decrease once the project business ramps in Q3 and Q4. So we will have less service contribution to the overall profitability. And the rest is portfolio. Ilya?

I think the first part, we understand Bob's question but I think that is as specific as I would go on a public call on the split between the 2. I think to the underlying -- or the other question that William is asking us about how you feel about the project margins, is that the target run rate you have? I think here, what we're saying is -- and Jose Luis correct me if I'm wrong, when we now sell the projects and go into execution, they absolutely are, but then it is a function of how we perform against the risk and chance and the contingencies we baked into them. So last year, for example, we came out in November, as you -- some of you might remember that our top notification that we were just doing substantially better. But this is what we also said at the full year call when we gave the guidance. For this year, we are budgeting this in a very similar fashion. So whether this ultimately will be the target rate or the rate we're targeting, I think everything goes well or better than planned. totally, if it goes much better, well, that's why we guide for a range towards the upside. If some risks, which we haven't seen in so far materialized, it goes the other way. So I think that is what would say depends on the bandwidth of contingencies we're baking into our calculations.

The second question would be around technology or product mix going historically and going forward, I think you're in the phase of ramping up the N175, a significant opportunity in the 6-megawatt category. When we look back on the success of the Delta 4000 around the 4 and 5-megawatt platforms, how should we think about the risk as you evolve onto the 6-megawatt platform? And specifically, is this something which has similar levels of profitability or better or how should we think about mix effect with regard to product development in the project business?

That's a very good question, William. I think, first, the 175 is one for the extension based on the same platform. So we started 149 4x, 5x, 6x, 163 5x, 6x, now 175 6x and even 7x. So on product, I consider this product to one evolution. And my expectations is that the reliability of the product doesn't deteriorate Contrary to what you could think in the previous upgrades of products every new variant of Delta4000 was performing slightly better than the previous one, which I have no reason to believe that 175 should be the other way around. So that's from a reliability point of view. From a margin point of view, I will say this product makes projects viable and bankable at price levels that otherwise those projects were not bankable. So are we capturing the extra value and increasing profitability, the one stands where is maybe not. Maybe this is the product that you need to make sure that we keep profitability slightly improving in an auction price market that is declining. So this is part of the solution while we think we can make money even with the auction prices in Germany dropping so substantially.

The last perhaps relates to one of your flagged risk issues around supply chain. If I recall, your turbine volume production stepped up 50% in China last year. I think it's about 40% of the volumes you booked. How would you frame the risk around supply chain from China? And going back to some of the earlier questions, about addressing the European localization content, do you have the capacity to ramp up if you need within Germany and Spain to flex or to balance between the 2 value-added around Nasal.

We clearly have the possibility to substantially to double if needed, our capacity in Europe. So far, we are keeping that possibility, and we're using that possibility balancing cost and obligation for the next industry at auction and eventually we're doing a little bit more in Europe than strictly required. But we have possibility to do more, yes.

[Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Jose Luis Blanco for any closing remarks.

Thank you very much, and let us close, as always, with a few takeaways from the first quarter. First, we have a positive start into the year with healthy order intake and continued confidence in the order intake trajectory across our core markets Second, our focus remains on generating positive and sustainable free cash flow, supported by good visibility on margins and the continued recovery we see across the business throughout the year. Third, we confirm our guidance for 2026. And last, overall, the first quarter support a view that we are setting a consistent pace our upgraded EBITDA margin target of 10% to 12%. Thank you very much and wish you a great afternoon ahead.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line. Goodbye.