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Germany

Germany

Nordex earnings fall as turbine orders drop

GERMANY: Manufacturer Nordex has reported a 10.8% fall in earnings before interest, tax, depreciation and amortisation (Ebitda) over the first nine months of 2017.

Nordex will begin cutting structural costs, particularly in Europe, in 2018
Nordex will begin cutting structural costs, particularly in Europe, in 2018

The company had warned 2017 would be a difficult year in February, a forecast that cost former CEO, Lars Bondo Krogsgaard, his job.

Sales were down slightly from €2.34 billion to €2.32 billion between January and September. This was due, in part, to a 21% increase in sales in Nordex's service division.

Order intake was below expectations for the period, totalling €1.11 billion — just over half the €2.17 billion recorded in the corresponding period last year.

"The main reasons for this decline included changed statutory parameters with a negative impact on project lead times and, therefore, on contract awards. This applies in particular to the public tender system that entered into force in Germany in 2017," Nordex said.

Despite new Nordex CEO Jose Luis Blanco's prediction of a "robust" fourth quarter, he warned of more of the same in 2018 and 2019 as the company begins cutting costs, particularly in Europe.

"For Europe, and especially Germany, there will be a substantial drop in business in 2018, with no significant change in 2019, but recovery will come in 2020 and 2021, and we will take our share of that stable market," said Blanco.

The lower demand in Europe and increased demand in non-European markets means industrial capacity "has to be adjusted accordingly." The company is looking to reduce structural costs in its European division by €45 million in 2018.

The "45-by-18" cost production programme is close to implementation, with materials cost measures defined and talks with worker representatives on cuts in full-time employee jobs – roughly 400-500 — to be "concluded by the end of 2017", said Blanco.

The annual savings in structural costs achieved next year — "marking the very bottom of activity in Germany and Europe" — will continue to 2019 and beyond, putting Nordex in a good position from 2020 when the European market recovers, the CEO noted.

Among its cost cutting efforts, the company is working to improve capital management by reducing current long lead times of 8-10 weeks to delivery in non-European markets.

In Q1-Q3, 704 turbines, totalling 2,452MW, were assembled but only 1,997MW installed, mainly due to ocean transport and freight logistics from production works in Spain to the Latin America and US markets.

The numbers will, however, tend to converge by the end of the year due to the usual end-year rush to install, said Blanco.

Nordex has confidence in the French market despite postponement of the target to reduce nuclear's share in generation from 75% to 50% by 2025 to 2030-2035. "We have a good position in France and expect a steady and healthy situation for the next three years," said Blanco.

As for the US market, Nordex is optimistic. "Our view is that the production tax credit will remain untouched, and this view is shared by our customers. The market will continue with its normal dynamic," Blanco said.

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