© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Annual Figures 2022 Conference Call of Nordex. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions]
I would now like to turn the conference over to Felix Zander. Please go ahead.
Thank you very much for the introduction Natalie, and good afternoon, ladies and gentlemen. On behalf of Nordex, I would like to welcome you to today's analyst and -- conference -- our analyst and investor call for the full year 2022. Our CEO, Jose Luis Blanco; our CFO, Dr. Ilya Hartmann; and our CSO, Patxi Landa will guide you through our presentation, sharing financial, strategy, markets and the latest developments for the year.
In the Q&A session, I would like to ask you to limit yourself up to three questions. And now I would like to hand over to you, Jose Luis. Please go ahead.
Thank you very much for the introduction, Felix. I would like to welcome you as well on behalf of the entire Board, as Felix mentioned, Patxi Landa and Ilya Hartmann are with me today in the call, guiding you through our presentation and taking your questions later on. We have enlarged our usual agenda with some additional slides about the planned debt to equity swap, markets, sustainability outlook and our recent initiatives in the hydrogen sector.
If we move to the next slide. And as usual, I would like to start with the executive summary of the last year 2022, which was an overall extremely challenging year, as you all know, despite some stabilization that we have seen in the second half of the year. We have to manage ongoing supply chain disruption, the cyber security incident, inflationary pressures, especially for freight and steel costs and after effects of war in the Ukraine. This meant extra unforeseen costs in the form of higher logistic, higher raw material prices and liquidated damage that impacted our full year performance. Despite these circumstances, our order intake continued with good momentum and we continue to see a good order pipeline. We booked 1.9 gigawatts in the fourth quarter, which means a cumulative order intake of 6.3 gigawatts for the full year.
Prices and margins in our order book are also improving. As you can also see in our [higher] (ph) reported ASPs. Our revenue in the fourth quarter increased by more than 20% from EUR1.5 billion to EUR1.8 billion, while our EBITDA margin was negative minus 2.4%. With that, our revenues on a full year basis reached around EUR5.7 billion, the top end of our revised guidance with an EBITDA margin of negative 4.3%. Unfortunately, our margins in Q4 were impacted due to higher LD costs, extra warranty provisions that we book to address some legacy issues of an all discontinued machine type. But as usual, Ilya will cover this in more detail later.
Our working capital was strong again at minus 10.2% and is better than our target of below minus 7% by the end of the year. Regarding our installations, we achieved our normal run rate in the third and even fourth quarter, but unfortunately we were not able to accelerate and catch-up as we have hoped. Thus, we could only install 5.2 gigawatts for the year, clearly below the previous year. During the last year, we also launched a new product variant Nordex N175/6.X, another highly efficient turbine, especially for areas with low and medium wind speeds, namely Germany and Europe.
On the financial side, we repaid a high yield bond at the beginning of this year. We have shareholder loan from Acciona and this also is now being converted into equity and therefore should sustain [indiscernible] improve our equity ratio once done, but more on this later in the presentation. On the strategic side, we have taken a couple of key initiatives in the green hydrogen space, with signed of two joint venture which I will explain later in detail.
Finally, we see that the market has been stabilized in new taxes, while we have been able to successfully increase our prices leading to a better quality order book going into 2023. This is also reflected in our improved margin outlook for 2023.
In addition, the policy momentum continues to be strong with US Inflation Reduction Act, European Green Deal and another announcements. Once these tailwinds materialize, then this could provide a great platform to enable us to achieve our mid-term target of 8% EBITDA margin. Nordex positioning in the market. In recent years we have successfully strengthened our market position, having doubled the size of our company from a 3 gigawatt company to a 6 plus gigawatt company. Also driven by of Delta4000 platform and its strong demand, we could increase our market share globally to 15.3%. In Europe, we reached 22.9% and in Germany well above 30%. Geographies that are expected to grow supported by policy momentum.
And with this, I will hand over to Patxi for the market, customers and others.
Thank you very much, Jose Luis. Looking at the orders, we sold 6.3 gigawatts of new turbine contracts in 2022 compared with 7.9 gigawatts last year, that also included a large 1 gigawatt turbine from Acciona in Australia. Majority of the orders came from Europe, with 73%, largest markets being Germany, Finland, Turkey and Poland. 21% of the orders came from Latin America, mainly from Brazil and Colombia, and 6% came from North America.
ASP grew to EUR0.84 million per megawatt in 2022, up from EUR0.72 million per megawatt last year. ASP in the quarter stood at EUR0.89 million per megawatt, increasing more than 20% with respect to the same period last year. Service revenues grew 22% in 2022 to reach EUR574 million with an EBIT margin of 16.7%. Average availability of the fleet was 97% with a total fleet of 31 gigawatts under service. Turbine order backlog grew 6% to EUR6.5 billion at the end of 2022 and service order backlog grew 7% to EUR3.3 billion for a combined order backlog of EUR9.8 billion.
And with this, I give it back to Ilya.
Thank you, Patxi. And also welcome from my side, and I would start not with walking you through the financials of last year, but with a brief update on the contemplated debt-to-equity swap that Luis mentioned. Of the shareholder loans we have with our anchor investor Acciona, as reported in previous calls, Acciona provided to us a shareholder loan of EUR286 million in the summer of last year. Together with the remainder of the shareholder loan that Acciona had given in 2020 and the bulk of which was converted in 2021, those loans have a total balance of EUR346 million. And the sole purpose of that second shareholder loan was the repayment of our high yield bond of EUR275 million and that has now happened by the end of January.
So thereafter on February 16, we invited for an Extraordinary General Meeting to among other topics proposed to our shareholders the conversion of those loans into equity. That AGM took place earlier this week, on Monday to be precise, where shareholders approved the resolution at a 99% rate. So the transaction will be completed once the new shares will be registered. Two key highlights maybe from that transaction once the swap is completed, it does and Jose has mentioned that improve our equity ratio on a pro forma basis, which we will show in a later slide, it would go up to 26% and it will save us approximately EUR46 million per year in interest costs. As a consequence Acciona's share in Nordex will go up from 41% to 47% and for the price, the conversion will take place at a fair market price, in this case EUR14.15, and I believe that is another proof of the strong commitment of our anchor shareholder.
But now, I will come to the full-year results and that is on the next slide. Completing few of the facts that Jose Luis mentioned, sales grew by around 5% to nearly EUR5.7 billion at the end of 2022, so on that KPI we ended at the upper range of the guidance. Gross margin stood at around 9% compared to 15% last year. That was mainly impacted by the ongoing inflationary pressures, the supply chain disruptions, cyber security incident, also leading to those -- these project related that we mentioned. To some extend those effects were offset by certain profits from our project development side.
Also, some of those effects are longer term in nature and the product of that highly volatile environment affecting not only us, but other businesses around the globe, but going forward, we would expect these effects to subside and our gross margins to return to normalized levels once the new orders start flowing through our financials. Therefore, EBITDA landed at minus EUR244 million and if taken as a percentage, at minus 4.3%, in line with the tightened guidance as we mentioned in our Q3 call.
On the next slide, we would see the income statement for the Q. As expected and also mentioned in the last call, sales increased over the years -- sorry, over the quarters, landing at around EUR1.8 billion for the last quarter, that's 20% higher compared to our performance in Q4 of the previous year. However, gross margins were impacted as we had to account for those extra costs from the LDs due to installation delays and other project issues. In addition, we also had to take an extra provision to address some legacy issues in the field from old and discontinued turbine type.
So to give you a rough idea of our underlying margins, if you adjust for these two effects, then our gross margins would be on a similar level like the year before. During the last year, we also closed the sale of 50% stake in our green hydrogen product development company to Acciona. As we do not control this SPV fully anymore, we are accounting for this SPV at a fair value in the books, between the two effects, the sale and the revaluation, we booked a net profit of around EUR133 million in Q4.
And with that, I’d move to the balance sheet. Now looking at the balance sheet, the overall structure, we would say, remained healthy with a liquidity level of north of EUR710 million at the end of the year. And we would break those down into two key parts, the cash level of EUR634 million and a cash facility of around EUR80 million. Looked a different way, net cash position was EUR244 million, equity ratio, as mentioned, stood around 19% at the end of the year on a pro forma basis, again, after the debt to equity swap, both KPI's will improve substantially. We will show this in a few moments. But before that, we go through the working capital slide.
Working capital development in the fourth quarter reflects our high activity levels and remains strong with a ratio, it was mentioned at minus 10.2%. This is on the same level when compared to the end of 2021. Maybe noteworthy that our working capital ratio remained clearly below our guidance number below minus 7 in all quarters over the last year.
Now, that brings me to the cash flow slide. Cash flow from operating activities stood at minus EUR340 million roughly for the end of the year and that was mainly driven by the negative operating results we mentioned and explained. Cash flow from investing activities was slightly above the level of previous years and mainly reflects the execution of our ongoing CapEx program with a slight timing effect I'll comment in a moment. And then finally, our cash flow from financing activities stood at EUR335 million and that reflects the cash flows from the capital increases last year.
And now we do see in the investment slide and we did invest around EUR205 million in the last year. Moderately higher compared to our guidance of EUR180 million and that is partly due to a catch-up of the slow CapEx run rate we had in 2021. So slipping effect and of course also inflation played a role and both CapEx numbers are up. Focus of the investments largely remained the same. Main investments were again in the blade production facilities in India, Spain and Mexico, as well as in the transport tooling equipment covering our higher installation levels, especially of newer turbine models.
And then, this is almost the last slide for the financial block. Here we do see the capital structure mentioned before few times, net cash EUR244 million, equity ratio 18.5%, but then when you do a pro forma calculation those numbers jump both one in the net cash to EUR577 million and in the equity ratio to 26%.
And now I go to my next part, which is our sustainability part. We have update, this plays an important role also now in the reporting and in the doing of the company, basically the whole business model of this company and our competitors is based on that. So in 2021 and 2022, we adopted so-called sustainability strategy 2025. Basically, we have put some ambitious targets for the whole organization. Here to highlight two of the ones we achieved. We keep decreasing the carbon footprint of our turbines as our new turbine models are even more efficient and have an even lower specific carbon footprint compared to previous models. And second, we have also and we are very glad about that to achieve the goal of significantly reducing the LTI frequency compared to the previous year, which is in 2022, 1.5 versus 2022, 3.2. There remains quite a substantial scope of work, but we will put more and more focus on resources on those topics, when it comes to sustainability.
And then to cap this off, a few numbers on the taxonomy, as most of us know the EU Green Deal captures ambitious goals of achieving CO2 neutrality by 2050 in Europe. So to succeed a unified classification system, all those sustainable business activities has been put together, the EU taxonomy, Nordex reported already in compliance with those new obligations for the first time in 2021, disclosing the eligibility of our business activities and now in 2022 also disclosing reporting for the first time on the extent to which our business activities are aligned with EU taxonomy. And as we can see on the slide and probably as we expected for our kind of business to a very large extent, we are eligible and aligned with these activities.
And with that I’d give it back to you, Jose Luis.
Thank you, Ilya. Talking about operational performance in 2022, as you can see on the slide, our installation ground rate in the first half was much slower, impacted by the effects of the Ukraine war and shortages and the cyber incident. Our running rate improved in the second half to normal levels, but not enough to cover for the delays in the first half. Unfortunately this led to some extra cost in our Q4 results and is still impacting Q1 this year. In summary, we are at 1,129 turbines in 19 countries with around 5.2 gigawatts, again with a majority of 75% in Europe.
Production, we assembled 1,502 turbines, slightly higher than the previous year, but due to the higher nameplate capacity, we increase the output from 6.7 gigawatts by the nearly 12% to 7.5 gigawatts. Similarly, we produced 4,774 blades, 6% higher than previous year, 20% were produced in-house, compared to 37% a year before. And this trend of outsourcing of blades will stay probably in the future.
Finally, I would like to highlight that the share of blades and nacelles from our production facilities in Asia and especially in India will continue to improve in the future, helping us lowering our production cost.
Moving to the next slide. And as I mentioned earlier and we have confirmed via our press release with the preliminary figures release on March 9th. We confirm that our performance was generally being -- has generally been in line with the revised guidance.
Moving to long-term. Long-term, l would say, the macroeconomic environment and the increased political focus are providing the perfect platform for a strong growth of the renewals over the medium term. As you might see on the slide, there is a huge gap between the targets and the actual forecast. The whole policy setup is driven by two factors. First, to achieve net zero emissions target by 2050; and second, energy security concerns. Furthermore, it is getting clear to the policy makers that we cannot get to the net zero targets without getting hydrogen from clear sources.
The effects of these two factors are already visible in a variety of forms, maturing PPA market, repowering, Inflation Reduction Act, support from -- for green hydrogen, European Green Deal and so on. Even if these ambitions are only partially reached, we should expect significant demand growth for the wind sector as this -- as it is one of the cheaper sources of energy in the market today.
While long-term prospects remain exciting, we also see some positive developments in the short-term. As you can see, turbine prices have been steadily improving over the last year along with a healthy order intake momentum for Nordex in the market. We have also been improving our risk sharing in the sale of contracts, as a result we enter 2023 with a better quality order book. In summary, we can state that the shorter outlook for the core operations is improving step-by-step with a better quality of order intake, and thus, order backlog. However, as you know, the risk from the macro environment in terms of higher interest rates, geopolitical uncertainty and inflationary pressures, especially in Europe and supply chain disruption still remain.
And within this context, moving to the next slide, within this context is where we want to share with you guidance for 2023. We see 2023 as a stabilizing year with our performance improving materially in the second half. As usual, we expect a soft start of the year. We expect our revenues to be between EUR5.6 billion and EUR6.1 billion and a small growth from last year. We expect our EBITDA margin to improve to be in the range of minus 2% to plus 3%. Even our past outperformance in managing working capital, we have decided to improve our working capital guidance to below minus 9%, and we also slightly increased our CapEx guidance to approx EUR200 million to reflect larger size of the operations and inflationary effects as well in CapEx.
With this I would like to repeat our mid-term target EBITDA margin of 8%, which we maintained again. The last two years has been highly volatile, impacted by COVID after effects, war and other macro headwinds. However, we believe that the macro environment is now slowly stabilizing. Turbine prices have improved while inflation is still persistent in Europe. It is also slowing down in Asia. The issues with the supply chain still continue, but is getting better than last year.
Looking forward, once mid-term political tailwinds materialize in volume and we also continue to build a healthy order book within the overall normal market conditions and a stable supply chain, this could pave the way for the 8% margin in the mid-term. Long-term, our initiatives in the hydrogen sector could as well provide an extra layer of support and safety in a low risk way. But let me explain that in the next slides.
As I mentioned before, we have decided to take a couple of strategic initiatives in the hydrogen sector as we see a lot of potential in that sector driven by the policy momentum and its potential to help governments to reach net zero targets. As you can see, the global hydrogen demand will likely increase multi-fold and most of those needs to be green hydrogen, which will mean more renewals. Right now this is not factored in any market forecast in any material respect. But if this demand fructifies, then this will mean doubling up the cumulative wind capacity in the world and multifold capacity buildup of electrolyzers in a short period of time.
The benefit from this macro growth trends while also leveraging our expertise in the project development side and scaling up industrial manufacturing and global services, we have decided to develop electrolyzers in-house, adapted for great operation and also initiate development of green hydrogen projects. We also entered into -- through joint venture [indiscernible] progress in order to secure a safe and low risk presence in key parts of the hydrogen value chain, including key equipment, technology, project development and O&M.
Let me briefly talk about both joint ventures in the next two slides. First, the JV with Acciona, as you will have seen from our press release today morning, we have entered into a JV with Acciona in December 2022, by selling 50% stake in our project development and venture for EUR67.7 million. This payment should broadly cover our CapEx commitments over the next four years in the joint venture. Through this JV, we can now progress much faster with a strong partner, who also has extensive expertise in large infrastructure projects. We already have many project sites under development in this JV today that could stretch to a total capacity of up to 50 gigawatts. The JV aims to get the first project to ready to be in the stage by 2027. Current target is to reach an annual capacity of 0.5 million tons of green hydrogen production per annum within the next 10 years.
As said, not material EBITDA or cash impact in the next four years and substantial potential future upside with the profits from this initiative, as well as additional turbine sales volume. Talking about electrolyzers, as I mentioned, we have been developing on a small electrolyzer prototype, that is already working in-house, and we have now decided to partner with Sodena to take this development further. We will continue to have 85% stake, while Sodena will own 15% in the joint venture with equal CapEx commitments over the next five years period. The remaining CapEx will be funded by government grant. Again this will boost our efforts by collaborating with somebody who has a lot of experience in supporting early stage startups. Again, as said, no substantial CapEx, no material CapEx or EBITDA impact for the next three to five years and the potential to create substantial future business.
And with this, handing over to Felix for opening Q&A.
Thank you very much for the detailed presentation. And Natalie, now please open the floor for the Q&A. Thank you very much.
Ladies and gentlemen, at this time we'll begin the question-and-answer session. [Operator Instructions] And our first question is from the line of Vivek Midha from Citi. Please, go ahead.
Thank you very much, everyone. Good afternoon. I have two questions please. Firstly, could you maybe quantify the magnitude of the warranty provisions and delays in the fourth quarter? I'm keen to understand the clean EBITDA margin in Q4, taking out both the project development income and the extra costs? Thank you.
That was one question. Thanks, Vivek. So yeah, between those two effects, both on the delay of projects and the extra provision we booked for the discontinued technology. I'd say if you -- if you picture this as more or less balancing out with what we have been booking as upside on extra profit out from the hydrogen business to the tune of EUR130 million to EUR145 million, that gives you, I think, the range for the underlying margins. I’d be shy on an open call to go into more details on each of those pockets, especially the projects ones are still under discussions and negotiations with our customers who we ultimately land, but to calibrate it for you, that would be the number.
That's very helpful, thank you very much. And my second question is on the longer term in the hydrogen story. You're now in the early stages of building out your electrolyzer offering. There are already existing players in this market, already starting to ramp up. So how are you going to go about catching up on the project as of the product development side? Thank you.
Thank you. Very good question. I think our vision and where we focus our project development for green hydrogen projects is very remote areas with very high resource conditions with the vision to develop technology adapted to these off grid operations, integrated with our wind turbine technology to be able to deliver the best landed cost of hydrogen or hydrogen derivatives to the consumption in Europe, in Japan or from the US to the US.
So I think there are a lot of synergies in the technology, in the way this project needs to be engineered and configure and the approach from the design phase is slightly different than what you can find in the marketplace, which we think is core for making these off grid projects viable.
Thank you very much.
The next question is from the line of Constantin Hesse from Jefferies. Please, go ahead.
Yes. Thank you very much for taking my questions. Actually, one of them was already answered. One that I had was really how the 8% medium-term EBITDA margin guidance that you have. Because, I mean, last time we spoke, I think, as Luis mentioned back in November last year, the cost base of the company have stabilized at that point, meaning, that 18 months down the line we could potentially already seen you at least getting close to your 8% EBITDA margin. So I'm just wondering with the deliveries of your higher quality backlog from Q3 and assuming supply chains improve, I mean, how realistic is it that we could already see something like that -- something around the 8%, that don't even have to be 8%, but something relatively close to be achieved already from Q2 2024 or even in Q3 2024 and probably be some -- to a level close to that for the full year 2024. That's...
With information we have today, and that is slightly different from this November last call is that, we are suffering a little bit more than expected in Q4, trying to catch up in winter, as well as in this quarter. So this quarter is going to be very -- is going to be low in activity and in profitability. But the margin profile of the year without getting into details points into the right direction. So, without being too specific, the way you phrase it, the margin plan for Q4 points to be close to that.
Okay, that's great. And then maybe just one more on this, if I can. Just drill a little bit further into this. I mean, you just mentioned that Q1 is going to be low. Just to be clear, the liquidation damages and the provision that was a one-off in Q4 or will we see continued liquidation damages in Q1 as well? And maybe, Jose Luis, if you can maybe just elaborate a little bit on where -- I mean, where is it so bad in terms of the supply chain? Because we, obviously, hearing from a lot of industrial companies that supply chains are improving and you literally benefiting from it. So I'm just wondering where exactly is the issue and what is the process that is currently ongoing to fix that from a macro view? Thanks.
No. Thank you very much. I think Q1 is not going to be easy, let's put it that way. I think, where are the supply chain? I mean, many, many -- unfortunately many European business partners are suffering big time. So we see companies going out of business, filing for insolvencies, quite unfortunate. And this cost you money, either to keep the operations running or to try to prevent from that situation. That is one point.
Second point. Although [indiscernible] substantially improved, we still have strong headaches here and there with missing parts from an electronic board to our communication board to a small cabinet. So it's not -- it seems that there is small things that are still impacting our ability to deliver and that we are still paying liquidated damages for late connection of wind turbines to the grid. Situation is improving and I will say that as we speak, this situation should be almost normalized. But the two effects are creating extra cost for the company. So instability and difficulties in the supply chain because as we are not making money, we don't have much money to share with our suppliers to support them. They have inflationary pressure, liquidity issues and some of them were out of business and this is impacting us.
Okay. That is great. Thank you. Maybe just one, my third one, on cash, having converted the shareholder loan, of course, helps you, but first half looks like it's going to be really tough in terms of margins. So I'm just wondering how comfortable you are with your current cash position? Thanks.
Well, thanks Constantin. That's a valid question. But I guess, the answer I would reference back to or refer back to what I've said during the presentation that, now going into the year with liquidity level of north of EUR710 million and even with some headwinds in Q1, Q2, really I feel comfortable on that end.
Okay. Thank you very much.
Next question is from the line of Ben Heelan from Bank of America. Please go ahead.
Yes, good morning and afternoon, actually. Thank you all for taking my question. And I wanted to talk a little bit about the pricing environment and, obviously, you've seen a broad stabilization of ASPs in Q4 versus Q3. How are you seeing pricing in Q1 and as we head into 2023? And then from a contractual perspective, you’ve talked about the new orders that is coming through, a better margin and you're waiting for that legacy backlog to rollover, has there been any material changes in the contracting terms of the new contracts and new orders that you're signing there, is better protecting you from the inflationary shocks that we've seen? Thank you.
Thank you very much. Patxi, can you take this please?
Yes. Thank you, Ben. So see, we are closing actually today the quarter and we will see ASP coming at or very close to EUR8.90 million per megawatt, but see stabilization with respect to last quarter. And the outlook for the year, we also see stability in pricing. So, passing through inflation, but some sort of stabilization, not the kind of increases that we saw over the last 12 months.
And with respect to risk, yes, we definitely increased significantly the risk profile of the contracts, with which we have taken many of the orders this year. I would say, given the time lag between signing a contract and actually executing and going through P&L, that is around 15 months to 18 months that we will see already the effect of this particular topic, 15 months or 18 months down the line, so hence hitting 2024.
Okay, that's very clear.
And being slightly more specific, we tried to derisk as much as we can. So doing back-to-back logistic, back to back steel tower sourcing and limiting as much as we can the exposure to the commodities for certain blade materials and certain nacelles material. For the rest, we went to derisk that. So not having upside, not having downside, not fully effects, of course, but a big portion of our cost of risk is covered by back to back contracts.
Okay. That's great. That's great color. Thank you.
Our next question is from the line of Ajay Patel from Goldman Sachs. Please, go ahead.
Good afternoon, and thank you for taking the questions and congratulations on the presentation. Couple of questions, if I may. Firstly, I just wanted to understand ASP a little bit more. So when I compare you and your peers in this case, Siemens Energy [indiscernible] just look at how the average selling price in the order intake has evolved over this last, say, six quarters, it seems that your order intake has increased far less than their half and on an absolute basis is low. Now, I understand for the absolute price amount may not be easy because of geography and scope, but more just wanted to understand the order of magnitude, why the order intake evolution is lower here than maybe your two peers? And is it because of the offering changing in some way, any clarity you can give here just to get a better understanding would be helpful?
And then secondly, clearly, we've had good legislative changes over the last 12 months, in particular, the US IRA. And looking at being in-house blade production and I'm just thinking, is there any -- almost changing the profile in where you produce, would you look to maybe add capacity in the US, for example, to take advantage of what's happening there? Or are you happy with the lay of your capacity at the moment? Thank you.
Let me take that. And then I turn over to do you Patxi for the ASP. Regarding US IRA, we are evaluating, but what one needs to be done to participate in that market. We have our [indiscernible] facilities in West Branch, Iowa, that we are finalizing the plans to start up again and ramp up that facility. And that facility, of course, qualifies for IRA and combined with four more facility that we have in Matamoros, Mexico is as well a facility that can be used very efficiently for delivering to the US. So we are going to have an offering for the US. The question is, when to launch the CapEx and the activity, which by the way, is not going to be that material, but that plan is a good plan that was working. So we will wait for the demand to come and then once the demand is there and materializing, we will take the decision to go ahead. Regarding ASP, I will better ask Patxi to comment.
Okay. I can provide some color there. Basically two factors affecting, the first one is the scope and the other one is product mix, so generator size. We are in contrast to some of our peers that seem to be lately and larger in scope, I have been seeing some more EPC appetite. On the other side, we do have some of our large customers that require reduced scope. So scope may payable there and more importantly is product mix.
To give you some color, for a relatively similar margin and without providing too much take as, of course, here publicly, but our largest turbines can be selling between 0.75 to 0.8 ASP, smaller generators sizes are the ones might be selling up EUR1.2 million to EUR1.3 million. So it’s a very significant ASP difference for a similar contribution margin as sold. So that is very, very relevant to understand. So what happens to Nordex is that, we are so-called penalized from ASPs comparison perspective, because our product mix is so much well -- going forward to the 6 times and 5 times. So we're selling larger generators on average, that our peers. Some of our peers are selling significant amounts of 4 megawatts and smaller turbines, while the majority of our sales are going to 5x and 6xs. And that is explaining the difference.
May I just add one more question if you don't mind. The other thing I was thinking is, you've laid out that this period of stability for 2023 and 2024 for the business before growth can still kick in before 2025 onwards. I'm assuming that implies over those two years were negative cash flow. I'm just wondering before we highlighted that -- we're had an equity issuance to prove credit metrics to tap more of the US client base, in particular. So I'm just wondering is the balance sheet is adequate enough to ensure that you can still tackle these same clients or do you need to improve your credit metrics to tap these clients?
So I think from a financial perspective, again, the strengthening here that comes from the conversion, of course, will be substantial. I wouldn't go as far you, Ajay, already kind of 2024 and you assuming again a negative free cash flow. I think that's too widen, if you're doing much in the future. But of course, we will have some deterioration during the year because of the free cash flow this year, but then I would believe from a standard perspective what we see as of late, the slowdown in the US market for us and others is not because we're not competing on that standard. We're not GE, but I would refer to Patxi, I haven't seen a deal by customer in the US being sent to us. Well, with the balance sheet like you are right now is not what we are doing business with, but correct me if I'm wrong, Patxi.
No, that is a correct.
Okay, that's very clear. Thanks.
[Operator Instructions] Our next question is from the line of Dan Togo Jensen from Carnegie Investment Bank. Please, go ahead.
Yes. Thank you. Just a couple left here. Maybe some color on your considerations entering Nordex electrolyzer theme. Why choose the alkaline technology, why not [PEM] (ph)? And why not partnering up with one of the already established providers of electrolyzers? So that would be the first question. The other question would be on your long-term EBITDA margin target of 8%, when do you expect to reach that? Thanks.
Thank you. I think starting with the second question, the conditions for the EBITDA is that, as we speak, we are selling orders with that profitability target in mind. So, for that profitability target to materialize once executed, we need basically three pre-requisites. The first pre-requisite is that, market doesn't collapse that we keep selling certain volume, stable volume. This stable volume is a regional substantial deterioration in the supply chain. So stability in the supply chain. And we mentioned before inflation in Europe, problems here and there easing, but still uncertain. Then we should be able to deliver this profitability target.
As I mentioned before, the margin profile of the year is pointing to the right direction, but I cannot be more specific on that. I think the evolution is pointing into that direction. We keep selling. We keep selling at sustainable profitability margins, other than the deterioration that we mentioned in Q1 driven by supply of machine parts and some issues. We don't see that going forward. So it seems more stable. So with those caveats, I think we should be able to see that.
Regarding the electrolyzers, we think we might be right or wrong that green hydrogen and green hydrogen derivatives is going to be the new oil or the new gas. So it's going to be a new commodity and to play in a new commodity, the gainer is the one that has the lowest cost of that product. And in order to get the lowest cost of that product you need the right size, with the right technology adapted to those sites. And we think that our combination of that in our wind turbines to upgrade the grid forming capabilities, combined with alkaline technology can give a lower cost of green hydrogen produced compared to other available technologies. And I think the lowest cost of hydrogen produced is going to be the key factor to be more competitive, and to be the first projects to land in the marketplace.
Maybe can you share some color in which region in particular, do you expect to offer this product? I mean, you mentioned the US IRA is very favorable towards green hydrogen. So is it...
Yes, yes, we can. We are developing a portfolio in US, because we started this development activities before US IRA, and we were developing in the US activity that we are now accelerating, but as well we were developing in Chile, Brazil, Latin America and North Africa to supply to Europe.
Okay. Thank you.
Thank you very much.
We have a follow-up question from Constantin Hesse from Jefferies. Please, go ahead.
Sorry, I think I was on mute. Sorry, just one more from my side, very quickly, more of a fundamental question in medium term. I mean, the Delta4000 has been around now since I think 2018. I think this question does come up sometimes. But I'm just wondering if there been any developments with regards to what a new platform could look like? How long can you actually still work with the Delta4000 and what that would mean for CapEx? Thanks.
Okay. Thank you very much, Constantin. And lastly, I'm very glad to hear that my competitors and colleagues from other companies said that you need to rationalize the product portfolio, that the existing products are quite good in terms, of course, that we don't need to go further in developing more technology as the technology is crazy competitive. We just need decent price for the technology we have. Of course, the decision to develop new products are not -- is not just based on the competitiveness of the technology, but based on supply and demand. So if all that competitors do so, you are forced to do that. We said always that we don't plan to do so. We plan to be reactive, be prepared if others do, but we don't plan to do. I don't see others will do, because all this what they are announcing is in the opposite directions to stabilize existing products, to ramp up existing products, to secure quality and to sell existing products for longer period of time.
So I think with the new router that we are developing on our existing platform, 175, we should be good for several, several years. I don't know how many, but definitely six to 10 should be doable. Going to even bigger machines is going to pose a lot of logistic challenges in Europe, it's going to require huge modularity, which I don't think is going to pay off -- I don't think it's going to be needed short-term in the market. So, I'm quite optimistic that the existing platform will last -- will last substantial number of years, let's put it that way.
That is helpful. Thank you very much. And maybe Jose, just one more, sorry guys. Because I just need to really get a better sense for this. When you speak to your suppliers, what is that they are saying? What are they saying? Are they saying is it is not improving at all from their side? Or are they at least seeing some improvement, which later will be felt to you?
I would say, our suppliers are suffering like us. I mean, there is a unbalance between -- of course there is way more money into the system, that's a fact. But this money is so far was not evenly distributed. Hopefully, we will aim for higher prices to get a better share on the distribution of that money into the system. And hopefully, we'll be in a position as well to share part of that with our suppliers, but we need healthy suppliers as well. And some of our suppliers are having hard times, so we need to be mindful. The big factor here is, Constantin, is the volume. I think if the volume materializes because we -- the whole sector in the middle of an energy crisis with crazy high prices for electricity, the sector is contracting less. And this is not driven by economics, it is driven by permits. So there is no permits in the market to build new projects.
The customers are really, really excited to go with more investments. I think that IRA, and the new European Renewable Energy Act will improve this situation in the medium term substantially. Same we see in Germany, that the country is aiming to triple the amount of installations is going to happen this year, no, next year, slightly improving, the year after quite optimistic, but yes, that will be the case. And with more volume means more pricing power, means better utilization for us, means better utilization of factories for our suppliers, means slightly less [indiscernible] for all of us.
Yeah. Okay. Thank you very much.
The next question is from the of Anis Zgaya from ODDO BHF. Please, go ahead.
Yes, thank you. Sorry, thank you very much for taking my questions. I have three questions, if I may. So the first one is a follow up on guidance and just to understand, what would allow you to issue 3% margin and the opposite to what would make you reach the bottom of the guidance in 2023? My second question is on CapEx. Did your CapEx include [multiple speakers].
Go ahead, go ahead.
My second question is on CapEx. Did your CapEx include the CapEx needed for the restart of the US capacity? And the third one is on EU, the European plan to -- industrial plan, what is your take from this European plan to boost European industry?
So the first question is basically selling around 7 gigawatts with certain gross margin per unit similar to the one we are selling and not deteriorating the execution for macro effect. Those are the three prerequisites. That the volume that is going to deteriorate, that the margin -- the gross margin of the order intake, that didn't deteriorate and that we don't deteriorate in the execution. Those are very much the three prerequisites.
Regarding the CapEx, yes, it's all included. Regarding installations in Europe, we saw that the European Union is working on the Industry Act. I think finally, it's a good signal that we [indiscernible] has been considered and categorized as strategic for Europe. There are targets there of 40% of European demand being produced in Europe. We are one of the market participants with more presence in Europe. So from that point of view, we are very happy to see that. But we still need to see how this is one of the concrete in actions. What are the measures to support the financial measures, the state aid measures, the support that the state is going to put for the industry to deliver to these targets.
Thank you. Just one more follow-up. In Europe, it's already the case of 40% on onshore market. I mean it's already more than 40% I think coming from Europe?
According to our data, it's not. I think the majority of the blades are imported, majority of the castings are imported, majority of forgings are imported. So the aim is to protect the remaining supply chain that is in Europe and eventually in large stock.
Okay. Thank you. Thank you very much.
Okay. I think that we have answered all the questions up to now. And I would like to take the opportunity to thank you all for the questions and the discussions. And I would say goodbye and I want Jose Luis for the final words and have a good afternoon.
Thank you. Thank you very much. So finally, as always let me outline my key takeaways from this year. First, the policy momentum with clear focus on energy security and independent energy production will support demand of onshore wind industry being one of the cheaper sources of renewable energy. Second, short-term challenges remain due to some supply chain disruption and geopolitical uncertainties. Third, the quality for order intake and backlogs are improving, while we make ongoing progress with our risk reduction measures. We have taken some first steps in the green hydrogen very early, initiating two partnership with a favorable risk profile. Last, but not least, increasing electricity prices connected with potential demand growth could support our pass through successfully, higher cost to support the weight to our mid-term margin of 8%.
Thank you very much for your participation in our call. I wish you a nice afternoon and Happy Easter next week. Goodbye.
Ladies and gentlemen, the conference is now concluded and you may disconnect. Thank you for joining and have a pleasant day. Goodbye.