Market Data 
Nordex SE (NDX1), a prominent wind turbine manufacturer, has reported a robust start to 2024, showcasing a significant increase in sales and order intake in the first quarter. The company’s earnings call revealed a 30% surge in sales to €1.6 billion and a notable growth in the gross margin to 19-20%.
Despite a slight delay in installations, Nordex remains optimistic about meeting its annual targets, including an 8% EBITDA margin, as it prepares to reenter the North American market and capitalize on potential US subsidies.
Key Takeaways
- Nordex SE reported a 30% increase in Q1 sales, reaching €1.6 billion, with a gross margin of 19-20%.
- Order intake doubled to 2.1 GW, mainly from Europe, while the turbine order backlog grew by 14% to €7.3 billion.
- The service order book also saw an 11% increase to €3.8 billion.
- Installations completed reached 1.1 GW, slightly behind schedule, but the company expects to catch up during the year.
- Liquidity at the end of Q1 stood at €741 million, with the company maintaining its guidance of an 8% EBITDA margin for the year.
- Nordex plans to reenter the North American market and expects to launch a US-specific turbine before Q3.
Company Outlook
- Nordex SE maintains its full-year guidance for 2024, with expectations of stable results and an 8% EBITDA margin.
- The company anticipates stable volumes in Europe and a strategic reentry into the North American market by 2025.
- A clear path to achieving midterm targets has been outlined, focusing on volume growth and margin improvement.
Bearish Highlights
- The company acknowledged that it is not a market leader in the US and will be price takers.
- Installations for Q1 were slightly behind internal planning.
- Working capital was slightly below guidance in Q1 due to seasonality.
Bullish Highlights
- Strong order intake of 2 GW in Q1, indicating a healthy pipeline.
- Anticipation of market share growth in the US and the launch of a US-specific turbine.
- Expectations of the US volume being as profitable as the European volume, even with subsidies.
Misses
- Production of blades was slightly lower than the previous year, with 1,039 blades produced and 30% in-house.
Q&A Highlights
- CFO Ilya Hartmann discussed exceeding 8 gigawatts to increase profitability, with the volume coming from North America.
- CEO José Luis Blanco expects Q2 to have lower volume but a stronger second half of the year.
- The potential impact of future subsidies in the US was discussed, with expectations of it factoring into average profitability.
In conclusion, Nordex SE is on a positive trajectory with a strong start to 2024, as it focuses on strategic growth and operational efficiency. The company’s reentry into the North American market and the successful management of its European operations suggest a stable path towards achieving its financial targets. With a firm grasp on its margin profile and a clear strategy for volume growth, Nordex SE remains a significant player in the renewable energy sector.
Full transcript – Nordex SE (1NDX) Q1 2024:
Operator: Ladies and gentlemen, welcome to the Nordex SE Q1 Figures 2024 Conference Call. I’m Vicki, the chorus call operator. I would like to remind you that, all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it’s my pleasure to hand over to Ms. Anja Siehler, Head of Investor Relations. Please go ahead, madam.
Anja Siehler: Thanks, Vicki, and also a very warm welcome from our side. Thank you for joining the Q1 24 Nordex Conference Call. My name is Anja, and I joined Nordic beginning of May as Head of Investor Relations, as some of you may already know. I do look forward to connecting with you over the next weeks. With me in the room are CEO, José Luis Blanco; our CFO, Ilya Hartmann; and our CSO, Patxi Landa, who will lead you through the presentation. Afterwards, we will open the floor for your questions. As always, we ask you to take notice of our Safe Harbor statement. Now, I would like to hand over to our CEO, José Luis. Please go ahead.
José Luis Blanco: Thank you very much for the introduction, Anja. I would like to welcome you as well on behalf of the entire Board. As always, I would like to start with our executive summary for the respective quarters. We had a strong start of the year with a very strong order intake of around 2 gigawatts compared to around 1 gigawatt we book here before. This came with a stable ASP and within our respected margin requirements. We also made some early progress in US, we book our first order 148 megawatts, not in first quarter, but in April after a long period of time, and this is a good signer, we hope to keep building on this and keep growing our US order pipeline this year. In terms of our financial performance, we again have a better start to the year compared to last year. Our sales increased by around 30% to €1.6 billion based on a better project and product mix. Our gross margins remained steady at around 20% — 19% to 20%. As a result, our EBITDA margin came in at 3.3% compared to minus 9.4% last year. This very significant improvement in performance comes mainly on the back of a better project mix, better execution and as well some cost elements on some projects improving better than expected. Also, keep in mind that the first quarter of last year included some heavy cost on account of inflation, supply chain disruptions and so on. But as we have seen last year, these effects are — shocks have slowly received it, and we see now a more stable environment this year. As a result, we now expect a much more stable margin profile this year within our guidance range. In terms of installations, we completed 1.1 gigawatts in the quarter compared to 1.3 gigawatts last year. This is slightly behind our internal planning, but we are confident on catching up during the year along with the delayed backlog of last year. On the liquidity side, we ended the quarter with a liquidity level of €741 million. This is mainly driven by seasonality of working capital. We expect the working capital ratio to normalize later during the year. Finally, we maintain our guidance and our midterm outlook of 8% EBITDA margin and our results in Q1 show first, how our margin profile could improve as better quality orders starting to flow through our financials in a stable and more normal environment. Second, also provide an early proof that we are making good progress towards profitable growth and achieving our mid-term target. Moving on to the next page. Let me provide a quick update on markets and market share although Patxi will elaborate further. As you have seen during our last call, we have become number three globally ex-China with a market share of 17% in terms of order intake. Since then, the full year installation data has also become available. Hence to complete the picture, we thought that this will be useful to you to provide an update on that as well. As you can see, we have significantly improved our market share last year as our [indiscernible] recovered substantially. We are still fourth largest turbine players globally in China. But now, we have very little gap with the second and the third player in the market. This is just another example to show that we have successfully scaled up to a 7-gigawatt company and we’ll target to scale up further beyond 8 gigawatts in the coming years. And now I would like to hand over to Patxi for discussing markets and order intake.
Patxi Landa: Thank you, José. As mentioned, order intake momentum continues to be strong. We doubled our orders with 2.1 gigawatts of new turbine orders compared to 1 gigawatt in Q1 2023. The majority of those orders came from Europe with 67% with largest markets being Germany, Lithuania and Turkey. South Africa accounted for 30% of the order intake and the remaining 3% came from Argentina. The increase in the order intake was accompanied by stable prices. ASP was €0.85 million per megawatt, which is slightly better than our 2023 ASP. Generally speaking, we continue to see prices remaining stable in our pipeline. Moving to the next slide. Revenues in our Service segment grew 9% to €166 million with an EBIT margin of around 15%. As expected, service revenues growing in line with our installation cycle and high contract renewable rates. As we have mentioned before, margins are temporarily affected by inflation effects turbine and regional mix, but we expect margins to recover in the future, once the share of order turbine types and share of nulled of the unserviced contracts were down in our order book. Average availability on the fleet was a 97% with a total fleet of around 45 gigawatts on the service. Moving on to the next slide. Turbine order backlog grew by 14% to €7.3 billion at the end of first quarter. Service order book grew 11% to €3.8 billion, leading to a combined on the beta cost €11 billion at the end of the first quarter. And now I’d like to hand over back to Ilya.
Ilya Hartmann: Thanks, Patxi. So, good afternoon also from my side. As always, I will guide you through our latest financial figures, starting with my first slide, as usual, with the income statement. So in the first quarter, we delivered sales of around €1.6 billion, which is a growth of around 29% compared to the previous year, which, among other things, is reflected of our improved order book, as mentioned earlier by José Luis. Gross margin sequentially improved each quarter last year and further increased to 19.6% at the end of Q1, compared to 8.9% in Q1 2023. Performance is mainly driven by the fact that last year was negatively impacted by extra costs coming from delays and other project issues. And now we have also a high proportion of profitable orders going through our financials as indicated in our full year call as well. So as a result, we achieved an absolute EBITDA of €25 million in the first quarter compared to those minus 150 million in Q1 2023. This corresponds to an EBITDA margin of 3.3% for Q1 this year compared to minus 9.4% in the same period of the previous year. That improvement was helped again by two topics, a pretty clean execution in the quarter and the lower portion of legacy projects delivered in Q1 compared to the quarters ahead of us. As the volatility of the last few years finally starts to subside, we now expect a more stable margin profile in the coming quarters, so slowly, but surely increase of those. And with this, I will move to the balance sheet. Overall structure remains in substance, unchanged compared to the year-end of 2023. We closed the first quarter with a cash level of €661 million. In addition, we maintained that cash facility of around €80 million, so an overall liquidity level of €741 million for the end of Q1. Compared to the year-end, our liquidity levels have decreased, but essentially because of the working capital ratio, so we can see this in a bit more detail on the next slide, because working capital ratio stood at minus 7%, in absolute numbers minus €479 million at the end of Q1. This is a temporary effect caused by a typical dip of manufacturing levels between a higher Q4 and lower Q1 activities. So, rather than the usual for the season, and so we expect the working capital ratio to revert back later in the year. And of course, we maintain our guidance of below minus 9% for this KPI. With that, let’s jump to the cash flow side. As you can see on the screen, our cash flow from operating activities before net working capital reflects a better margin profile of our orders over the last quarters, and is hence a result of the improved operational performance. However, the aforementioned working capital development resulted in a cash flow from operating activities of around minus €200 million. Cash flow from investing activities stood at around minus €50 million, slightly higher compared to the previous year level, however, in line with our planning, nothing much to say about our cash flow from financing activities, which totaled around €8 million for the quarter. Jumping to the next slide, the investment totaled to around €34 million in the first quarter compared to €25 million in Q1 2023. In this past quarter, we executed our investment program largely as internally planned. We expect to see a catch-up in the CapEx run rate over the coming quarters to meet our CapEx guidance for the full year. And that brings me already to my final slide the capital structure. So yes, as a consequence net cash levels decreased to around €360 million compared to year end. The development was anticipated and is mainly driven by the higher working capital as explained on some of the previous slides. Equity ratio stood at nearly 19% and remains basically unchanged from year end level. And with that I’m giving it back to José Luis who will guide us through more details of our operational performance in the first quarter.
José Luis Blanco: Thank you, Ilya. So let me provide you with a quick overview of our operational performance in the first quarter of 2024. As mentioned before we completed the installations of 1.1 gigawatt during the first quarter although this is 16% lower than last year is slightly behind our internal planning. We expect higher activity levels in the coming quarters as last year which should take care of the spillover delays of the quarter and of the last year. In summary, we have 227 turbines in 13 countries again with the majority in Europe. Production we assembled 200 turbines slightly more than last year. In terms of megawatts that means around 9% growth year-over-year. And similarly we produced 1,039 blades a bit less than last year. Around 30% were produced in-house which is slightly more than in the last year. And with this we are approaching the end and going on to the guidance. After reporting Q1 financials the key message here is that we can confirm and maintain our guidance for the full year 2024. In summary, we can say that Q1 results provide a great start of the year. Sales and margins are in line with our expectations. And in contrast to previous years where there was a lot of volatility throughout the year. We now expect more stable results as external environment starts becoming normal again. Working capital was slightly below our guidance in Q1 driven as mentioned by seasonality of our sector, but it should revert back to normal later this year. And now handing over back to Anja to open for Q&A.
Anja Siehler: Yes. Thanks, gentlemen for leading us through the presentation. Let’s open the Q&A session. So Vicki, please go ahead.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from John Kim from Deutsche Bank. Please go ahead.
John Kim: Hi, good afternoon everybody. [Technical Difficulty] [indiscernible] updated view on how you see legacy backlog or low margin backlog filtering through the numbers in the next call two years strong. [Technical Difficulty]
Anja Siehler: John sorry to interrupt. We can’t hear you completely. Can you please repeat your order backlog question and then maybe be closer to the telephone?
John Kim: Sure. Is that any better?
José Luis Blanco: Yes.
John Kim: Okay, sorry for that. Can we speak about the cadence on backlog delivery as it relates to legacy backlog? So, from memory there’s about 1.5 gigawatts to deliver through call it middle of 2025. Is that still the right way to think about it and the right quantums? And how does the loading work front end versus back end loading? Thank you.
José Luis Blanco: Okay. I think we don’t have the granularity of how this backlog of let’s say average quality will flow through the P&L. But you are right it’s approximately 1.5. And the assumption is that we will get rid of that during the year, not in the first half but during this year. John you still with us?
John Kim: Perfect. Thank you. Could we just talk about underlying price dynamics holding project scope constant. Is the pricing dynamic or environment stable now? Or are you still able to put price increases through. How should we think about that?
José Luis Blanco: It is generally speaking and across the markets, we don’t see variations. We continue to see stable prices not only orders that were close, but also in the orders that we see through the pipeline that we will be closing in the next quarters.
John Kim: Okay, great. Thanks so much.
Operator: The next question is from Ben Heelan Bank of America. Please go ahead.
Ben Heelan: Yes, thank you guys. Good afternoon. The first question I had was around these comments in the presentation on the margin profile, small step-ups expected each quarter. So, it sounds based off the 3.3% EBITDA you did in Q1 you expect to be at the top end of the guidance for this year, so — from a margin perspective. So, I’m wondering why you haven’t raised the guide today to close that to the top end? And then secondly if you look at that guide the second half of 2024 versus the second half of 2023, wouldn’t imply that material amount of improvement in the margin profile? I’m just wondering is there something specific that’s driving that? Or is that just a conservative take? How should we think about that margin step up in the second half of the year versus the second half of last year? thank you.
José Luis Blanco: Thank you for the question, Ben. I think we are not going to shy at the Q1 results. We are happy with this. With that being said, it’s too early. I mean it’s a majority of the activity is still to be processed in production, in installation and so on. It’s true that in Q1 we saw slightly more opportunities than risk. We see stabilization and our internal planning is slightly improving in the next quarters to come. Is this going to lead to end into the top end of the guidance? It’s possible, but we still see a lot of risks. So it’s too early to form a different view on our guidance at this point, although we are positive, we are optimistic. And that’s very much what we can comment regarding that. And regarding the second question, I think our situation is more stable now. We should not plan for the substantial step change we saw in the second half of the last year, although we see improvements obviously with more activity and more stability, we should do small improvements quarter-on-quarter.
Ben Heelan: Okay. Great. Very clear. Thank you.
Operator: The next question from Sebastian Growe, BNP Paribas (OTC:). Please go ahead.
Sebastian Growe: Hey. Good afternoon, everybody. Thanks for taking my questions. Just three overall. The first one would be around the US reentry. So you sounded quite optimistic with regard to making a successful comeback in the US market. And I would be interested in three points here. So, the first one is when you stand in the question of [indiscernible] falling the Iowa plant? Second question is, what is the launch date that you have online for US-specific turbine? And thirdly, where would you see target volumes over time in that market for yourself?
Anja Siehler: Go ahead. Sebastian, your last question was very silent.
José Luis Blanco: Target volumes.
Anja Siehler: Okay. Understood. Okay.
José Luis Blanco: I got it. Hi, Sebastian. I think the when so – regarding the US, as we share with your in the previous call, we needed to do some homework in the product, which we are working around the clock to launch like our competitors, a high-capacity factor machine specifically for the US. We expect the plan was and still is hopefully before next quarterly call, we should be able to say something otherwise we’ll be beginning of Q3. Second, I think we have reasonable products for non-high capacity sites in US that we are targeting now customers in US and in Canada, and we expect to run certain orders. Regarding reopening Iowa is not enough is and when. We are selecting the right time to be in line with the requirements of the demand. But reopening the Iowa plant is not the bottleneck. We have created internal plans to be able to ramp-up that factory and having available components that meet local requirements, training programs and so on, within the normal schedules that the customers are requesting to us. So that should not be the bottleneck. And the last question regarding market share, we don’t guide market share. But if in the past, we were able to do from 10 to 15. This is where as far as we can go. I mean we should not pretend and that will be too optimistic to have a market share like in Europe 40%, that’s not realistic. But why not the market share that we previously had in that market? In the past we were able to deliver 15 market share. And at that time we were a weaker company, a smaller company than we are today. We are a better brand, a better leadership worldwide and I don’t see a reason why we should not have ours more share in that market.
Sebastian Growe: That sounds reasonable. And if we talk volumes then so far we have a strong tilt in order intake towards the EMEA region both in 2023 and also in quarter one 2024. So can you update us on your pipeline in EMEA? Do you see that stable at around 6 gigawatts to 7 gigawatts per annum? And what is your expectation really for the Latin American markets and Australia are like?
José Luis Blanco: Hey, Sebastian. We see a good momentum in Europe. So we’ll continue to see that we will deliver volumes at the level if not better in that geography. With respect to the North America and the US, you can expect 2024 being a reentry year. So don’t rule out to see more orders but don’t count on them as well. And I do see 2025 to be back structurally from an organic perspective in the market So in combination and I’m not guiding orders but we started very strongly the year. We do see Q2 probably being at a lesser level, at a lower level but then picking up again in the second half. And we have very good visibility on the volumes that we may be doing for the period.
Sebastian Growe: Brings me to my last question. I think we had previously also another call discussions around where could you take the business if everything falls in place with the capacity around the cells, et cetera. If I take your words now for the outlook in Europe add to this what could be then 1.5 gigs plus/minus in North America. Let’s see what comes out of Latin America. Let’s see what comes out of Australia. So then that would take me to a very high-single digit, if not 10 gigawatts numbers so plan on them. And maybe you can comment on that one, if there’s any sort of error simply and then that kind of framework. And the other question I still had is you labeled the point that 20% was the gross profit margin in the first quarter. I do recall that you also said that in 2024 you would have at least some liquidated damage – liquidity damages headwinds not as material as in 2023 for sure and that you would still sit on some legacy contracts. So long story short, where is really a clean and underlying gross profit margin should be closer to 22%, 23% for my liking. So maybe you can also comment on this? Then I’ll let you go.
José Luis Blanco: Let’s take first the volume pattern and without guiding anything, not for the year, nor in the strategic plan. So recently we revived. I mean if we maintain our market share in Europe and we grow with the margin – with the market in Europe, and if we recovered the market share that we used to have in the US and if Latin America doesn’t fall apart and if we do business in South Africa as we are doing and leveraging on our Australian presence from this in Australia that we are working on, yes, we will be heading into that direction, but it will take time because the orders in Patxi was mentioning in ’25 more than my might be delivered in ’25, but more than likely in ’26. So — but long-term possibility, yes, and we are preparing for that. And regarding the composition of the margin and the headwinds?
Ilya Hartmann: I would say together doing this I think Q1 we mentioned in your intro which is rather good executed little hiccups and less legacy projects that we can expect in other quarters. So the distribution of the legacy projects in ’24 is a bit more random. It’s not necessarily at the beginning. So this one was rather on the lower end of a portion of legacy projects. So I wouldn’t extrapolate from that upwards, but stand behind our statement José Luis said this, steady but slow step up in absolute margin is what we want to convey as a message.
Sebastian Growe: Thank you very much. Appreciate it.
Ilya Hartmann: Welcome.
Operator: The next question is from Ajay Patel from Goldman Sachs. Please go ahead.
Ajay Patel: Good afternoon. Thank you for the presentation. So I wanted to just take a step back and just think about the drivers. So we have the guidance for this year. We have the 8% target for the sort of more medium term. We know that the vast quantity of legacy projects expire or work through this year. Can you just walk me through the building blocks to an 8% margin target? As in — is it, that if you have very strong volumes this year, we could be on our way towards that in the nearer term? Or is it really predicated on working through our last legacy project next year? I just want to understand the building blocks again to ensure that I know the picture?
José Luis Blanco: Yes, that’s a very good question. And we confirm the building block that we presented I think it was in the last call. We had a specific slide maybe in the future, we share again. So the in blocks was close to — in the range of 1%. We did profitability improvement by not having legacy orders. So the legacy orders are flowing through the P&L this year. So we should not expect — so our internal planning is that we should not expect legacy orders in the P&L in the future. Then we mentioned in the previous questions and as well that we are planning to grow with the market in Europe and we are planning to recover market share in US. So there is a potential of extra volume for the company within the existing — with the existing capabilities of the company to do business. And this high volume potential could leave the profitability by better absorption and by better margin generation in roughly speaking let’s say 1% to 2%. Then service margin this is a more medium-term. We talk about temporary impact due to inflation, composition of certain less profitable project that over time might improve the underlying margin of the whole company in 0.5 percentage point. And we discussed as well in previous calls that executing projects in Germany currently is deteriorating a little bit profitability by permits and by road transportation and so on. We expect this to be soft in the future and this should improve the underlying profitability as well in the range of 1%. So those are the four bridges or building blocks to transition to that mid-term profitability targets. So legacy orders, more volume, normalized service margins, getting rid of the extra cost of executing projects in Germany driven by mainly logistics.
Ajay Patel: Can I just add a little clarification there?
José Luis Blanco: Yes, please.
Ajay Patel: All of those volume pieces added together is the un rate that’s consistent with an 8% margin target, 8.50 gigawatt, 9 gigawatt, is that kind of the rate?
José Luis Blanco: I think it’s — without being so specific, yes. So we need that volume for that run rate to lift this profitability in that range, yes.
Ajay Patel: Terrific. Thank you.
José Luis Blanco: I’m — that is possible.
Ajay Patel: Thank you very much.
Operator: The next question from Sean McLoughlin, HSBC. Please go ahead.
Sean McLoughlin: Thank you. Good afternoon. Firstly on cash flow. Given that you’re guiding us towards the top end of the range, shouldn’t we expect the year to be closer to/or above or certainly it’s kind of positive cash flow regime? And what are the risks and drivers around free cash flow generation in the second half? Second question, just, I think probing a little bit more into the 8 gigawatts. You talked about scaling up to 8 gigawatts. Is that included within your 2024 CapEx, i.e., you’ll be at 8 gigawatts of delivery capacity by/or within 2024? Thank you.
José Luis Blanco: Second question is if, yes, it’s within the CapEx guidance is for the round about 8 gigawatts. The first maybe to take it Ilya?
Ilya Hartmann: Yeah. And I think, yeah, if you caveat we’re not guiding for those kind of things like free cash flow, but rather give you those building blocks, and I think we made three statements. First, I don’t think we’re indicating the upper end of the guidance yet. I think, we’re showing a trend that was we’ve made clear those risks. So that’s there. And secondly as I said in the full year call ,if we’re getting on those building blocks on each of those to be higher range than somewhere slightly negative neutral free cash flow is absolutely possible. I think that’s — we continue to see the very same way as we did in the full year call.
José Luis Blanco: But with one quarter less of uncertainty, so we are happy with the Q1 results, let’s put it that way.
Sean McLoughlin: Thank you.
Operator: The next question from Constantin Hesse, Jefferies. Please go ahead.
Constantin Hesse: Thank you very much for taking my questions as well. A couple of questions on my side one of them Patxi over to you very quickly, just on the order side. So as far as I understand order momentum continues to be pretty good in Q2 as well. Can you maybe just comment a little bit on the momentum relative to Q1, because obviously you had a very strong Q1? So just curious to see what you see there. Number two is, have you by any chance ever looked or done you move probably have, but done analysis on this potential 8% mid-term EBITDA margin guidance including, the future subsidies that you will probably be benefiting from in the U.S.? I think in the U.S. we’re talking about US$ 0.05 per watt on nacelles and US$ 0.02 per watt on blades. I mean that is obviously a pretty significant figure given where your EBITDA is today, assuming that, you’re able to deliver volumes closer to 1 gigawatt or at least 0.5 gigawatt even would have a substantial impact. So anything that you can comment on here would be greatly appreciated. Just to understand, Iowa is a nacelle plant, right? And the blades, you would import from Mexico?
Ilya Hartmann: So content I think the question is on the order intake and the questions on the U.S. we understood. But unfortunately your line was really low or interrupted. So your second question would be great, if you repeated it.
Constantin Hesse: Apologies. Can you hear me now?
José Luis Blanco: It’s just more interference. It like the volume is so much. We’ll try. Come again Constantin, we will try.
Constantin Hesse: Okay. I’ll go, really slow. It’s about the U.S. IRA subsidies, the $0.05 per watt in nacelle and the $0.02 on blades. If you have looked at this and done in an analysis on the potential margin impact if this could have for you once you ramp up production in the U.S.?
José Luis Blanco: Yes. Okay. So this is — yes, we have done. And we concluded that for us. The best approach is local nacelle from Iowa. And imported blades from other locations and local suppliers either more than likely steel, but we are analyzing as well in-house concrete towers to deliver the IRA requirements. So I think this is the best margin — we see the best margin profile for our business there. We don’t have blade operating facilities like some of our competitors. So for us a new investment in a U.S. blade factory, we don’t see the good investment, let’s put it that way.
Patxi Landa: Yeah. Let me clarify with this. We get 100% of the value under the IRA.
Ilya Hartmann: In its various stages, but also in the last requires which I think is around 55%. So with that set up we will also benefit from even the last stage of requirements in the IRA. We’ve done that analysis.
Constantin Hesse: So that basically also means that your future margin is probably going to lay way above the 8%, just driven by the subsidy alone?
José Luis Blanco: No. I think that’s included into the — we expect with this configuration of supply chain to sell to the American customers at average profitability. So if we expect to sell at average profitability, all included what the U.S. is going to bring is potentially and eventually this extra volume exceeding the 8 gigawatts to lift the profitability as the building block we mentioned before. But we don’t — our assumption today in the budget and in the business plan is that U.S. should bring volume at average profitability of the group.
Constantin Hesse: Okay. Because I’m just curious because you first introduced the 8% margin on some of these before the IRE was announced. So I would have assumed that…?
Ilya Hartmann: Yes, yes. The IRE, we needed for the volume because to get to the 8%, we need volume and where is the volume going to come from? Before more volume expected from Latin America, now the Latin America is slowing down. The planning was always more volume coming from Europe, which we are delivering, while protecting prices and margins. And the compensation from the decline in North America, plus the additional volume to the 8 gigawatts needs to come from North America.
Constantin Hesse: Okay. And that will clearly be a very profitable volume given the future subsidies?
Ilya Hartmann: We expect so. We expect that we’ll be as profitable as the European volume.
Constantin Hesse: Okay. Even including those subsidies?
Ilya Hartmann: Even including those subsidies. I mean, of course, this is a supply and demand if our — in U.S. we are not market leaders. As a consequence, we are not price makers. We are price takers. So the two other players will decide the price and the margin of the sector. In Europe, we have more responsibility, as we are market leaders on prices and margins, but I hope that U.S. follows the pricing strategy that Europe has followed.
Constantin Hesse: Okay. Great. And then just quickly on the order intake momentum that in Q2?
José Luis Blanco: Q2, we will see this is private business. Q2, you can expect a lower volume that will have in Q1, but for the rest of the year picking up in the second half of the year. So I see a good pipeline for the full year, but you can expect a relatively weaker Q2.
Constantin Hesse: Thank you very much.
José Luis Blanco: Thank you.
Operator: [Operator Instructions]
Anja Siehler: We have now closed the Q&A. I would like to hand over to now to Patxi to — for your final remarks.
Patxi Landa: Thank you. Thank you very much Anja, thank you very much for the questions and for the participation. Moving to the key takeaways. First, I would say, the macro environment is stabilizing. We still see some inflation pressure, but not massive shocks like last year. At the same time, our order intake and pipeline continues to be healthy and we expect to make more progress in US and North America this year. Q1 results represent a clear set of results, with minor external exceptional impacts, which provides a very solid start for the rest of this year. As a result of normalizing environment, we expect a more stable margin profile this year, despite some temporary challenges in the form of geopolitical risk, installation delays and higher project costs in Germany. And last but not least, we see a clear path for achieving our midterm target on the back of volume growth as discussed margin improvement as discussed and growing service business as discussed. Thank you very much for your participation in the call and wish you a nice afternoon. Goodbye.
Operator: 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 lines. Goodbye.
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