Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Order intake grew by 54% year-on-year, driven mainly by onshore projects in Europe and Asia Pacific.
- Adjusted free cash flow of EUR 0.5 billion, driving leverage down to 0.7% net interest-bearing debt to EBITDA.
- Revenue increased by 4% year-on-year, indicating underlying business improvement despite challenges.
- Power Solutions segment saw an EBIT margin improvement of almost 8 percentage points year-on-year.
- Strong cash flow in the quarter with operating cash flow at EUR 830 million, a significant improvement from last year.
Negative Points
- Q2 revenue decreased by 4% year-on-year, negatively impacted by the service segment.
- Service EBIT was negative EUR 107 million in Q2 due to a EUR 300 million negative adjustment.
- Gross profit margin was only 4.7%, negatively affected by the service adjustment.
- EBIT margin before special items was -5.6%, indicating ongoing profitability challenges.
- Warranty costs remain high at EUR 141 million, corresponding to 4.3% of revenue.
Q & A Highlights
Q: Can you explain the implied margin of around 9% for the second half of the year and how it compares to your medium-term target of 10%?
A: There are no single effects on the second half margin. It is driven by the ramp-up and operational leverage from higher volumes. However, quarters with lower volumes will not achieve the same operational leverage. The service business will perform in line with recent quarters, and the backlog review of planned costs will not immediately affect future quarters.
Q: Does the order ASP increase in the quarter indicate an underlying like-for-like price increase?
A: The commercial discipline has been very good across a wide range of countries. The mix in this quarter includes large volumes from core markets like Europe and Germany, indicating strong commercial progress.
Q: Can you provide visibility and confidence in the step-up of installation volumes in the second half of the year?
A: We expect a very busy second half with higher pricing compensating for lower volumes. The organization is used to installing large volumes and is performing well, giving us confidence in the second half outlook.
Q: What opportunities exist to improve the efficiency of the service business as you work through your warranty backlogs?
A: We are addressing inefficiencies by comparing country and cluster performance. Task backlogs are trending downwards, indicating improved efficiencies in parts of the service business.
Q: What has changed versus Q1 to make the implicit guidance for Power Solutions materially higher?
A: Better execution and fewer risks materializing have improved our outlook. The trajectory is confirmed by the first half performance, indicating better underlying profitability.
Q: How should we think about the profitability bridge from today in offshore to the EUR2 billion top-line guide for 2025?
A: The first EUR2 billion in 2025 will include incremental investments and ramp-up costs, making it dilutive to the overall margin. Meaningful margin accretion will occur beyond EUR2 billion.
Q: Can you clarify the outlook on the growth and margin for the service business?
A: We expect the service business to continue growing at market growth plus, around 8% to 10%. The margin will be on par with recent quarters, with a long-term target of 25%.
Q: How do you see your balance sheet in order to participate in industry growth and the offshore ramp-up?
A: The solvency ratio is not an issue, and retained earnings will help improve it. The current capital structure is sufficient to support industry growth and the offshore ramp-up.
Q: How do you see the investment sentiment in the US, EMEA, and APAC regions?
A: The US market is progressing well, with no acceleration or deceleration due to the upcoming election. EMEA is seeing positive developments, especially in Germany and the UK. APAC, particularly Australia, is ramping up its renewable energy projects.
Q: How do you see the service structure for offshore wind evolving?
A: The service structure for offshore wind is still developing. Some customers prefer longer contracts, while others opt for shorter ones with component assistance. The market is evolving to resemble the onshore service structure over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
