Good morning, everyone, and welcome to, this call for the first quarter of 18. Let me start with the usual disclaimer slide and then move straight into the key highlights of over the quarter. So an all time high order backlog combined at 1,000,000,000, up 8% year over year. Revenue close to 1,700,000,000, which is a 5% organic decline compared to the very high Q1 of last year. Where of course, we had a lot of the 100 percent PTC components delivery.
And now back to a more normal seasonality. The EBIT margin of 1,000,000, corresponding to 7.4%. Solid performance again from our service business, organic revenue growth of 5% and very healthy EBIT margin of 26.8 percent. So as usual, I will talk about the orders in the market, Mike, here with me today, we'll talk about the financials and then we come back with outlook and Q And A. This is also the time of the year when we get an external view on market share when it comes to installation.
Or grid connected for last year in gigawatts. And of course, we are satisfied that we keep our market leadership both according to Bloomberg New Energy Finance and make with a bit over 16% on the global market share. Looking at order intake in the quarter end, it was 1.6 approximately gigawatts and average selling price of 1,000,000, euro per megawatt. The year over year decrease in megawatt was 4 20 or 20%. US, Italy, and France were the main contributors to the order intake in the first quarter.
Accounting for approximately 65%. The ASP, as I said, in Q1, was 0 point 73. So a stable development compared to previous quarter, but a market that remains highly competitive. And as usual, we should remember that geography, the scope turbine type and uniqueness of law for ease factors in the ASP definition. We changed a little bit in the market regulatory environment delivery order.
Quarter and comment slides, for this quarter, try to summarize it in 1 per region. So let me start then with Americas where we continue to see, a high demand in the U. S. And Latin America. U.
S, as before, very much driven by the current PTC structure. And a good high activity levels in the market. We also saw that the US signed an order for 25 percent tariffs on steel imports, but the final outcome is still uncertain. On the Vesta side, then, we are localizing our format platform in the U. S, we see good demand on that platform.
And as we talked about before, we see a shift from 2 to 4 Megawatt platforms in the U. S. Market. In Latin America, we had a restart of auctions in Brazil actually started already last year, but also one in the quarter called A-four and, an A-six auction is expected in Q3. On the VESPA side then, we established manufacturing capacity in Argentina to support our all leading market position and growth.
Looking at delivery then, down 65% year over year, and again, primarily due to the high, deliver of delivery of 100 percent PTC components that we had last year, but we also saw a bit lower activity level in Latin America. Orders, down 12%, a continued, high order intake in the U. S, but year over year, not much in the strong orders we took in Argentina in Q1 of last year. From a market share position, we are the market leader in Americas. And of course, we are also very satisfied that we remained number 1 in the U.
S. Market. And increased our market share in Latin America during last Also, here, we remain the leader in a region that is in transition. Starting on the regulatory side, as I said before, I think within EU, fair to say that the demand is driven by the 20202020 targets for renewable energy. A positive is, of course, that the euro parliament has proposed a 35% renewable energy target for 2030 compared to the earlier 2017 is still no decision, but a positive indication of that lower prices for wind can drive higher volumes.
Russia had an auction last year, and we expect another 900 Megawatt auction for this year. And we also see positive signs then in Middle East Africa. It's been a 400 Megawatt auction completed in Saudi Arabia and South Africa has started to sign KPAs for the 1.4 gigawatts that has been, at the stands deal for quite some time and also our expectations of new auctions starting up. From a delivery point of view there, and fairly stable, down 5%. Some changes between UK, partly offset by Denmark and continued high delivery in Germany.
On order intake, down 18%. Here, we see the impact of lower orders from Germany, where the recent auctions have not yet materialized as orders. But on the other hand, good order intake in Italy as a result from the auction in 2016 and our first ever order in Kazakhstan. Again, last year, and we are the market leader in the region with a well established footprint and strong position in core markets such as Germany, France and the Nordics. Moving over then to Asia Pacific, which, of course, geographically we have a, it is a very diverse region, and where we have presence in many of the markets.
On the regulatory side in China, wind targets has been increased with 50 gigawatts 2020. On the Vesta side, we have decided to sort up production together with TPI of the 850 blade. India, as they had executed 2 auctions in Q1, And I would say also, we see good activity level in the broader region, Australia, executed about 5.50 Megawatt auctions in the first quarter. Delivery up 3.28 percent from a very low base. From a number of different geographies, but primarily then, India and Australia.
Order intake 51%. So and that is primarily the drop in China year over year or we had a strong order intake last Q1. From a market share point of view in this region, we are on single digits. And the reason is of course that the region is highly dominated, with China and volumes in China. And here, we have a very small market share, but of course, still the biggest non domestic supplier.
As I said, we had a record high. We had a record high order backlog of more than 1,000,000,000. And the combined backlog increased with SEK700 1,000,000 sequentially despite a negative FX impact of SEK 250,000,000. The increase on the turbine side was 1,000,000,000 and on the service side to 1000000000. Once I'm about to offshore them, that, of course, we have, with our partner MHI, The first conditional orders was taken on the 9.5 Megawatts turbine on the product side.
And Taiwan added as a new market opportunities, we start to see now that the offshore market is not only concentrated in Northern Europe. The joint venture has a good track record. With over 1000 turbines installed and also a healthy pipeline, excuse me, both when it comes to under installation and firm orders of 1.6 gigawatts and conditional orders and preferred supplier of 2.5. In the quarter, the final commission was done over the ramping project, which was a 3 Megawatt project also shown then in our vessel P and L. And the joint venture are well positioned for the Taiwanese market with local MRUs in place.
And you can also say that on the net, project execution, now, it's very focused on the 8 Megawatt turbines. So with that, I hand over to Mike.
Thank you, Anders. So if we have a look at the income statement and I would like to highlight here that we have a tough comparison against our own numbers in Q1 2017. Which was a record quarter for more parameters. We are delivering according to our own expectations, but we also said that on the back of Q4 that you will see a normal distribution of the quarters here in 2018. And that's also what we are delivering.
Revenues decreased by 10% and that is driven by both FX and also lower deliverables in deliveries in power solution. Gross profit as a consequence of lower activity is down, and that is volumes, but also lower average project margins in the V2G or power solutions segment. You can also see that SG and A cost is lower compared to last year, which I would come back to in more detail on another slide. EBIT is down driven by the explanations given on the revenue and gross profit. The result from the joint venture, the positive 18,000,000 is primarily the results from delivery of the Rampeon project that Anders was alluding to earlier.
So if we have a look at the SG and A, we are 7.4% compared to or in line with last quarter. Obviously, the percentage is a consequence of lower activity level, but bear in mind that what shown here is the 12 months rolling. This continues to be a focus area and one that we are controlling, obviously, a part of the one of the controlling elements we have in the group. So good performance on the SG and A and well in line and above expectations compared to the lower revenue that we had in the quarter. So if we have a look at the service, the performance continues to be strong.
You see a slight revenue decrease in actual numbers compared to 'seventeen. Main factor there is a negative effect impact of 1,000,000, and that is resulting in 5% organic growth. As you can see, we are delivering a very strong EBIT margin, 26.8 percent, to be exact. And there obviously is a consequence of good performance good cost control and also good performance of the turbines. The service order backlog also grew compared to Q1 of 2017.
So good growth, good margins and excluding FX also a growth in the organic side for the service business. The balance sheet remains strong and obviously provides flexibility for us as a group. And this is as you know, something that we have been working towards and gives us a strong position, but also flexibility in the market. We deliver a net cash position of 1,000,000. That is impacted by the acquisition of Utupus, also the net working capital element that I will come back to and the share buyback program.
The net working capital increased. And again, I will elaborate more on that now. When you see the performance over the last 12 months and the last 3 months. Solvency ratio is above the minimum 20 5% that we have put up as a target. So the change in net working capital as you can see, we are building inventories and, that is well in line over the last 12 months with the prepayments.
And you can also see that we have a contract asset liability of 171. I would like to highlight here that we have said now for the last few quarters that we will use the balance sheet and the possibility to build inventory on based on firm order intake and nothing but firm order intake to avoid some of the investments because of capacity needs primarily for the molds. So that story remains or rather that fact remains. You can see the net working capital change over the last 3 months is following the same pattern. The quarter is impacted by increased revenue and reduced payables.
And that is to a certain extent, offset by higher prepayments. So no surprises on this note. The warranty provision and the lost production factor, the high quality of the turbines continues. And you can see on the loss production factor that we are continuing to be below 2%. You also see a slight decline here in the quarter.
Also bear in mind, despite that we have a higher consumption than provision that the consumption is based on previous provisions, so it's not related to the quarter as such. Cash flow is negative and it decreased, if you look at compared to Q1, 17. And the decrease is primarily driven by lower profit. As you can see, a negative change in net working capital, as I was alluding to earlier, and negative noncash adjustments. And cash flow from investing activities, no surprises here.
It's the you to post 5,000,000 and you also see cash flow from financing activities that is primarily driven by the share buyback program. That we launched in at full year 2017 result. Total investment are more or less in line with the Q1 of 2017. The methodology is not change. We continue to invest in capitalized R&D and Malls, primarily.
And you also see the impact from quarter of increase of 1,000,000 compared to last year is Youtopost. Capital structure is well below the threshold when you look at net debt to EBITDA, despite a slight up tick, we are well in the negative territory. And the share buyback causes the solvency ratio to decline. 27.6%, but still above the minimum 25% target that we have put forward. Andres?
Thank
you, Micah. So then, Luca, going over to the outlook for this year, and we maintained the outlook that means then revenue, between 10,000,001,000,000,000 and EBIT margin of 9% to 11%. Total investment approximately 500% and a free cash flow of minimum, 400, and we have not either changed our view on the service with growth and stable margins. So with that, we will move over to your questions. Thank
Please hold until we have the And the first question comes from the line of Claus Alma from Nordea. Please go ahead. Your line is open.
Thank you. Yes, a few questions from my side. The first question goes to the service margin. Marika, you also mentioned this nearly 27% margin in Q1. Is that a new level or is more an extraordinary for the first quarter?
That will be the first question.
Yes. And as you are alluding to Claus, it is very high margin in Q1. We have not at a new level for the service business, what we're continuing to say is that we will deliver high stable margins for the service business also going forward. So we're not setting a new standard. You will see certain lumpiness, but it's obviously with efficiency gain and growing the business, we see that stable performance is crucial for the service business.
Just the second quarter in a row where you're making a really amazing margin in distribution?
Yeah. And I understand obviously where you are coming from cows, but we, we see, we see stable high margins. And then if it's going to remain at this level, obviously, remains to be seen, but we have delivered very high stable margins for the service business
Okay. And then the second question goes to your revenue per per megawatt in, yes, in the revenue, obviously. So the delivery per megawatt which is around 1,100,000. I thought it was going to decline closer to your backlog ratio. And at the same time, based on the rounded numbers, your backlog ratio is actually going up despite the order intake megabat ratio.
Maybe you can share some on these trends?
The 1.1 on deliveries that you are alluding to, obviously, have a is impacted by the scope of the projects, but also the mix of the projects. So you have an EPC project that will have to be deducted from that number as such, And the other question, Claus, was sorry?
Yes. So we have the math that your backlog ratio was point 77 in 2017. Your order intake ratio was 0.73 in this quarter. And then when you're delivering significantly above the ratio, one should think that the backlog ratio in the Q1 would go down, but it's actually going up Q over Q So just wondering what was going on in these numbers?
A little bit what I was trying to say, Claus, it's the backlog will be impacted by also the new accounting standards that we have. So it will shift both backward and forward if you have deliveries, then that will obviously also impact the revenue to which extent it's hard for me to speculate but you will see the same impact. Some of the projects from 2017 has been pushed into 2018, but you will also push out some of the projects from 'eighteen into 'nineteen depending on delivery time. So it will have that will have an impact both on the backlog. The revenue and also on the deliveries, the one point line that you were alluding to earlier.
Does it have any margin impact?
I mean, as I said, I don't expect that to have a significant impact on the revenue for this year and consequently not a significant impact on on the profitability in this year, but it depends on we I don't have the exact number because it obviously depends on how flawless we can be on the delivery if it's exactly according to expectation. But my expectation is that we will push out some from 2018 to 2019. And you have also consequently done the same from 2017 into 2018.
The line has dropped out. We've got the next question from the line of Akash Gupta from JP Morgan. Please go ahead. Your line is open.
My first question is on pricing and order intake given that ASPs are flat sequentially, but at the same time raw materials are going up and maybe there would be some impact because previously it might be but may not be hedged for new orders. So basically, if you can comment on the pricing and here, particularly, you can talk about how the impact of higher steel price will reflect in your financials? That's my first question.
Okay. Oh, so if I look at the ASP, of course, it was, as I said, 0.3% in the quarter. So stable compared to last quarter. Compared to last quarter also, I wouldn't say any bigger change in scope. We had a little bit more, supply only.
In the quarter. And on the other hand, then no China order intake in the quarter. So fairly, fairly comparable. We had a headwind of FX. In of 0.02 in Q1.
So yeah, I mean, sequentially, the ASP stable with those variations that I talked about. On the sale, I think two comments and also, as you said, first of all, of course, we are dependent on steel in our product for sure. So of course, if, if and when steel prices goes up, it has to be absorbed by the shame Having said that, I think that still is also fair to say that there's still quite a lot of uncertainty around both import tariffs and different local steel prices. And you're also correct when it comes to, to the backlog and, and the film order, we are hedging with different means so to speak either indexation or customer discussion or supplier discussion. So we don't expect and a major impact on stealing price increases for 'eighteen, but potentially then, of course, except the and for autos in 'eighteen and then potentially more, let's see what happens for 'nineteen.
And my second question is on share buyback. Maybe in the stock, it's still down year to date. I thought you may go into renew share buyback. So if there are any reasons why you would that you would like to highlight behind not renewing a share buyback, that would be great. Thank you.
Yeah. I mean, our methodology remains, and we were pretty clear on why we did the share buyback here at the beginning of the year. And we will follow our normal pattern and come back with what we are intending to do on the share buyback in, on the back of Q2 this year.
Thank you.
And the next question comes from the line of Casa Blum from ABG Sundal Collier. Your line is open.
Thanks a lot. Two questions from my side also. When you gave your guide 2018, you also talked about a longer term guidance. And in that connection, you described 2018 as a transition year. Have you come any further to whether you would also describe 2019 as a transition year?
That's my first question.
Yeah, I think, that, of course, we will come back 2019 and guidance for that in due time. So I mean, currently, of course, we're focusing on on 'eighteen. But having said that, I mean, we are clear with our long term financial ambition. We also put both when what kind of market condition we will see for that to happen and also a timeframe where we think that that's this is, is a likely scenario, and we say that 3 to 5 years, which is our strategy horizon. So yes, that's where we are today.
And I would say that not much has changed there.
Okay, fair enough, Anders. Then secondly, We've seen some of your competitors that were struggling a little bit to get orders last year having a bit of a bounce back in their order intake, both Siemens Gamesa and Nordics, just to mention 2 names. Are you seeing any changing in sort of the competitive dynamics? And I understand if you don't want to comment on competition specifically, but do you see any change to what you could call your technological leadership in the industry?
I mean, we feel very confident with our technology leadership. And And, because, of course, you're right. I mean, the competition, as we have said many times, is really on the levelized cost of energy from the cat. Learned. That is the combination with of products, technology leadership, also future products and future product commitments, It's the the fit, the tower heights, the fit to the customer sites.
And then And of course, then also lost price. So it is on those factors. And it continued to be, as I said, very competitive market to get to the liberalized cost at the end of the year. And I feel very comfortable with with our technology leadership position, which I think also reflects in that we are generating best in class margins.
But if I could just then sort of try and ask in a different way to see if that works, fair enough that you remain comfortable than being number 1, but are you sort of starting to feel someone sort of catching up on you then a little bit or how would you also explain the sort of comeback that we've seen from some competitors?
No, but I think that if you look at our order intake, in 'seventeen as we also said, and I I I was very satisfied with our order intake. I agree with you. We've seen a bit higher order intake here now in Q1 from some of our competitors, but to draw big conclusion on a single quarter, I think, is a bit too hasty, honestly. I think that As I said, we felt very good, we feel very good with our order intake compared to the competition for for the full year last year. And we see a healthy volume in the market going forward.
And then of course, we accept that between quarters, orders can be a bit lumpy.
So you are not worried by what some might have read as a slightly disappointing order intake from your side in Q1?
If I look at If I look at, our forecast, if I look at the market overall, I see healthy levels in the market, a good activity level. I feel that we have a good position. And then And I feel that we have a good market share, as I talked about. So then of course, we need to execute on that, and we need to get all those firm and do that announced. But But, yeah, yeah, I mean, I will not, I will not guide on orders, so to speak, but that's how I see it.
That's very helpful. Thanks a lot, Thomas.
The next question comes from the line of Markus Belanda from Carnegie. Please go ahead. Your line is open.
Thank you. First question regarding warranty provisions. Why were provisions made so much lower this quarter than in previous quarters?
Well, that is, obviously, based on how we see the performance of the turbines. And if we have any specific cases and This is quite a rigorous process that we go through, on a regular basis, together with the VPG segment. And we have reduced because of the good performance of the turbines, as you can see also on the very stable delivery on the loss production factor.
And does that mean we should expect lower provisions going forward as well?
I mean, it's the
performance doesn't change from quarter to quarter.
Yeah. I mean, that that's obviously, as I said, that will be, depend on how the turbines are performing and if we have any specific cases. But as we see what we see now, it is well within the coverage of how we are performing.
And second question, regarding the strong service margin following up on Klaus Almer's question. Just to understand, is turbine performance the most important parameter for the for the service margin?
But it is Turbine's performance definitely is also dependent on how much efficiency we get out of the service organization as such. But primarily, it is a consequence from the high quality of the turbines. And therefore, you will also see a certain fluctuations as we take the revenue when we do a physical servicing. And if we don't have any major costs related to that, obviously, that will have a positive impact.
And is there any seasonal variation to that? I'm thinking, I mean, I imagine turbines produce more power in in Q4 and Q1, at least in Europe. Does that boost your score?
No, it's not, but I think if I mean, a bit more generic. If you look at the lumpiness that we've seen also before, we have had also a pattern where if the revenue have been a bit lower or the revenue growth has been a bit lower, the margin has been higher. The simple fact, as Micah said, that if we for example, have anticipated a major component change at a certain point in time. And then that doesn't happen because the quality is better. And we don't take the revenue that we take when we do the activity, and we don't have the cost either.
So that is more the pattern, and it has nothing to do with real seasonality.
Understood. Thank you.
And the next question comes from the line of Dan Togo from Handelsbanken Capital Markets. Please go ahead. Your line is open.
Yes, good morning. Thank you. A couple of questions as well.
I'd like to hold on to the service margin here because you're guiding for flat service margin compared to 17 a year around 20%. Now you are at 27%. So could you maybe share some occasional thoughts around what could potentially or will potentially take the margin below the 20% in order to reach 20% for the full year So what's installed basically for the rest of this year? Because, I mean, otherwise you should increase your guidance, that the first question. The next question will be around ASP.
Could you give some comments around the pricing environment at the moment because, yes, sequentially, SPS is almost flat, but it's still on a declining scale. And is that sort of a continuing and in what pace, how should we lower HP going forward? Thank you.
Yes. So I will probably not give you any different answer than what you had previously on the service margin, it continues to be stable. And again, at a high level, that's all what we have softly indicated on the service margin, there is a lumpiness in the service business and it absolutely performing very well from profitability point of view, but we will stick to stable margins for the service business. We have no intention of changing that.
So what you're saying is basically optimistic to factor in 27 percent frets in margins in coming quarters for service?
Yes.
Okay. Should I ASAP? It's right. Yeah. No.
So, I mean, again, as I said, of course, sequentially, ASP is flat. And as you also talked about many times, of course, ASP can vary a bit, especially between when we have different scope. In ASP. And I mean, generally speaking, ASP, of course, will decline due to technology. Just due to the fact that we, we see a shift in the portfolio to more 4 megawatts and less 2 megawatts.
So of course, those trends will continue very hard to say the exact timing of those scope in between the quarters, but that general trend will, of course, continue.
But you don't see a new 27 coming, it's 2017 coming up where prices take, so to say, a big dip down? You're sort of saying seeing, seeing, we are reversing to the old trend to that modest decline?
I mean, of course, we've now seen sequentially more modest decline for two quarters. And and that is, of course, positive. And then again, I don't have full visibility of what the competition will do going forward.
Okay. Thank you.
And the next question comes from the line of Katie South from Morgan Stanley. Please go ahead. Your line is open.
Hi, Anders. Hi, Marcus. Thanks for taking my question. I just had a couple. Firstly, I want to clarify.
I think it was the first question that was asked. Around the pricing of deliveries versus the pricing of orders? Or is there still quite a big discrepancy in those numbers from 1.1to0.73? What I really just want to understand is how long that gap can stay or at what point those two numbers are going to collide, which they'll have to at some point. But, yeah, I'll give you that question first and then I've got another one to follow-up.
I mean, if you look at the ASP on the delivers, yes, I agree. It is higher than the 0.73 for order intake. But that is the ASP, as you know, is driven by scope of contracts and the differences in timing combined also with the regional mix. So The turnkey projects will have an impact on the difference between these two numbers as that is recognized over time, but you don't include that in the deliveries until you have fully completed the project. And therefore, you have to adjust for EPC to get to the sort of exact number on the deliveries?
Do you understand what I mean? Sorry.
I guess you're not going to give us the adjusted number.
No, I think you can probably calculate that based on what we have shown.
My second question was just on the cost dynamic because as you've already discussed with the raw material and the steel prices, a lot of people in our industry have also been talking about labor wage inflation obviously in just the wind industry in general, the prices are coming down. What I was wondering is just what kind of levers are you looking at that you can pull in order to set to offset that price cost challenge?
Yes. I mean, 1st of all, I think, extremely important to continue to bring out new technologies and new turbines, more efficient turbines with more production. I think that is, of course, probably the biggest labor and the one that we have used in the industry for quite some time. And IRC continued good opportunity. The second part is, of course, to continue with the cost out program that we see that comes with standardization of components and, with volumes and with high, with manufacturing gains.
And then the third thing is, of course, to make sure that we have our fixed cost, under tight control in the company.
Okay. Thanks. Understood. If I could, then maybe just one last one, just a quick one for me.
Yes. Remind everyone that please only two questions from Toast. Otherwise, all your colleagues will not have the time to toss their questions. So please only two questions per person.
The next question comes from the line of Christian Johansen from Bank.
Yes, thank you. So my first question is around the timing of deliveries. Obviously, it was strong in order intake last year and deliveries going up. I'm sorry, backlog going up, but I was a little surprised to see your deliveries going down here in Q1. Can you just help us understand the the timing of your backlog in the coming quarters?
I would say if you compare to 21 of of last year, also bear in mind that we had a lot of activity in the U. S. Because of the PTC components. That is obviously something that's not materializing here in Q1 of this year. So that is the major explanation why you see a deviation from Q1 of 2017.
But still wouldn't it be fair to assume that your backlog points towards growing deliveries?
I mean, the backlog, as you say, is big, not both for the service business and the BTG business. And we are speaking to our guidance. So obviously, expectation is that it will go up.
So there's nothing you want to flag in terms of deliveries for the next three quarters, which should be aware of?
Absolutely not.
Fair enough. Then you mentioned this localization of the formula platform in the U. S. Just elaborate a bit more on that means also in regards to CapEx?
Yes. No, that is, of course, with a trend that we've seen for quite some time. And I think that's actually good for because, of course, we have a very strong 4 megawatts platform as well. So it's not the whole of the U. S.
So it's still then different parts of the U. S. Where the 4 Megawatt delivers a bit our levelized cost to reality. We have already from, the construction of the various factories that we have in the U. S.
Catered for that we can put in, four megawatts for the blade. So from a factory CapEx investment, we handle it within our existing setup. Then so the investment for that, those product is very much what Micah talked about. It is the molds to produce them on.
And in terms of the timing, are you fully up on this thing introduced for me or locally stated?
We also production of the longer blades in the US already.
And the next question comes from the line of Pinaki Das from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Hi, good morning. Thanks for taking my questions. So the first question is around orders. Obviously, you had a what's a slow quarter for orders, but I understand that you mentioned that you see good activity levels And you also are in the press saying you expect a pickup in activity in the second half. I'm not sure whether that's for orders or for general earnings.
I wanted to understand like what gives you the confidence that order levels should be should be normalizing as you said and the quarterly fluctuation should become better. Which markets give you the confidence that the overall order activity levels should keep you happy as you mentioned?
Yes, I think, I don't know which way but I think what's clear is, of course, that we are back to a bit more than normal seasonality, which means higher activity levels, generally speaking, in the second half. On the other side, as I said, I mean, we see good activity levels in the market. We see healthier activities level in the market when so when I look at the customer discussions we have, the potential we are discussing, I see a good high activity level in the market. And our regional sales organization is, of course, working hard capture that activity level. So that is what makes me feel sort of confident that there is a healthy activity level in the market.
And then of course, the timing of those orders, as you know, I mean, We have a very good and very thorough process to declare orders firm that, that serves as well. And then those milestones has to be ashamed and has to be for us to take it firm. And And that, I think, as I said, serve as well, but also of course means that we will have a bit of lumpiness in order intake as we've seen before. On top of that when it comes to our competitiveness, I'm also confident. And of course, again, coming back maybe a little bit to a longer period and look at last year and our record high order backlog.
Gives me confidence on our ability to take all those points going forward.
Okay. Cool. Great. And the second question is, is regarding your guidance, obviously, you've kept your guidance unchanged for the full year, I think at the full year results, you sort of mentioned that you would aim to be towards the higher end, the consensus seems to have gone to the middle of the range now. Considering what had happened in orders or in steel prices and FX, and whatnot?
How do you feel about the range in terms of like which side of the range would be more comfortable with at this point? The midpoint or towards the higher end or lower end?
Yes. First of all, I think we haven't indicated any yields of the range. We have kept the range. So, yeah, yes, to make that clear. And also, as we said, At that point in time, we have a good order backlog.
We have, of course, a good visibility what we need to do for both the lower part of the range and the high part of the range. We We still need some in for auto orders for this year, but we have a very had a very good coverage coming in. And of course, we have a from that standpoint, even a little bit better coverage now, but we then have the normal seasonality, which means the anticipated high level towards the second half of the year. We have a normal risk that is associated with that and therefore, revenue recognition. As you said, I mean, the steel prices, we don't could have a minor impact this year, but, then on the in for out, which has also said, of course, indicated is not enormous for this year, but potentially, of course, And then we have a general FX headwind, of course, that is where we have different scenarios, how that will play out for the full year, depending on the geography, which is a bit hard, was to, of course, naturally predict So we will still need you to work with different scenarios as we have down in the past.
And we could, therefore, we also continue to keep the range.
I just have a quick comment to make is that you haven't disclosed the megawatt equivalent under completions like you used to in the past? Perhaps, is that a deliberate or you're not going to disclose in the future?
Fair comment, lucky, but some also that we are disclosing, it's a balance how much we disclosed. And if you look at the overall disclosure that we have here in Q1, it much more than previously. So, but I mean, you can get that number if you choose from the IR team. So no problem with that.
Great. Thank you.
And the next question comes from the line of Mark Freshney from Credit Suisse. Please go ahead. Your line is open.
Hi. Just a question on the inventory build. And on the turbines under completion, I think the data is can be put together easily. And I estimate that turbines under completion have reached 5.9 gigawatts. And inventory has caused your free cash flow to be I think one of the worst quarters I think I can remember, but Can you give some more clarity on exactly what is causing the turbines under completion to rise.
You alluded to some issues with the molds, but why would that not why would that impact this year? And not in previous years when you've also had very high levels of utilization. It just seems that there's something going on within the business operationally that that is
not clear to us. Okay.
So, and that's, what I try to confirm is that the methodology that we don't produce for anything about, apart from the farm order intake remains. So it's based on firm order intake. That's how we build the inventory, and that's what we obviously always will do. And because of, of you will also have a certain part of the inventory being what I've tried to explain before with EPC projects, they will not the volume will not be flushed out until you have a full transfer of the project. So there, you will take revenue, you will take profitability, but you will not take the the deduction in deliveries until you have fully completed the project.
So that's one factor that will have an impact And then what we have said and I would say for the last two quarters is that if we can see a possibility to extend the lifetime of the modes and use fully. So we don't have anything idling there. We will do that instead of investing in new modes. So It's that usage of the balance sheet has not changed. And then obviously that have a big impact on our cash flow here in Q1.
Okay. Thank you.
The next question comes from the line of Michael Rae from Redburn. Please go ahead. Your line is open.
Hi, there. Thanks for taking my two questions. The first one, just on steel prices. How should I think about your rough sensitivity to the steel price just if I can see things like hot rolled coil or plate steel prices rising 30% year to date, should I imagine that your steel input costs are rising by that to or by the time you buy the actual machine steel products, is the proportional increase less than that for you? Is the first question.
And then the second question is just on Taiwan and the offshore opportunity. What's the timeframe for any orders that you could win there? Making it into the backlog?
Yes, if I start with Taiwan, and of course, that's really a question for me once we answer that, what kind of timing they have there. So I honestly don't know and let them speak for their activities there.
Then if we talk about the steel prices, what Anders was saying earlier, for this year, 2018, we are not expecting any impact material prices being primarily because of the steel content in the products. So obviously for the coming years, is another thing, but that's also something we will have to come back to when we guide for 'nineteen. But we have a certain logy that I have been alluding to earlier. So we have indexation in the contracts. We also pre buy and we hedge steel.
And that's why we are all confident in saying that the steel in price for 2018 is not significant.
Okay. Okay. So I understand the timing effects on 2018, but are you also saying that these commodity steel benchmarks are not a useful indicator for your costs?
No, but I mean, obviously, I mean, we have a certain methodology that I don't want to be how we secure ourselves within different time frames. But I mean, the methodology is that you look at certain time frames, how much you want to be covered, and then you have different means of doing that. So again, what impact that potentially could have for next year in the coming years we will come back to?
Okay, okay. Thank you.
Thank you.
And the next question comes from the line of Sean McLoughlin from HSBC. Please go ahead. Your line is open.
Thank you and good morning. Firstly, a clarification. What is your current coverage of the minimum end of your sales guidance for 2018 at the end of Q1?
Sean, that we have not disclosed. We said that we compared to what we have said earlier is that compared to 2017, we have a higher coverage entering into 2018. And obviously with further order intake here in Q1. It has, has the visibility has increased further. But how much exactly we have not been disclosing.
And a second question, on the U. S, just a general comment on the U. S. Market post the tax reform, we understood that everyone was digesting the implications of the tax reform of the BEAT provision. I mean, how are your customer feeling about the 2018 to 2020 ramp under the 100 percent PTC level?
And should we expect U. S. Order intake to really pick up through 2018?
Yes, I think that As you say, I mean, after the turbulence and all the speculation on negotiations in the PTC that we saw towards the end of last year, I would say that the good news that it's now back to the same situation as before those discussions started. So So, I mean, we see a very healthy, market in the US up to 20 I would say also 2021. We still see that it will, from a delivery point of view than our installation point of view, will be a phased market. So 2020 will be probably the biggest year. Of course, hard to speculate exactly how this will pan out over the years.
But I think it will be ramp up, so to speak, from now until 2020 on delivery. I've seen different external forecasts that 'seventeen to, to a 2020 time period volume should be around 40 gig. And I think that is a fair assumption for us to base the market size planning on.
Okay. Thank you.
The next question comes from the line of Gurpreet Goodra from Macquarie. Please go ahead.
Just a couple from me. Marie, I know you just going back to the 1.2 gigawatt of turbines delivered in the quarter? I know you said, compared to last year was a bit of an anomaly given the the PTC cycle and hence, it's not a fair comparison. But if you look back in 2016 2015, the turbines delivered was also in that sort of 1.2 gigawatt range. It does suggest that in this particular year, the Q1 deliveries are relatively low.
Especially against guidance. Is this primarily to do with the EPC side of how you recognize deliveries or is there something else?
No, I mean, as I said, one comparison is obviously the PDC. If I compare with with 2017. And then I don't recall the numbers exactly for 2016 2015, but you would also have deliveries if it's EPC contracts in a given quarter, that will have an impact, but that's nothing I recall from those quarters, specifically, but it, as we're not recognizing those from a volume point of view, that will have an back, yes. You're right.
Okay. Yes. Okay. So to be clear, when it comes to revenues, you do recognize clearly EPC contracts, but from a volume perspective on deliveries, you do not until there is a full commissioning of a particular project?
You have, yes, correct.
Okay. All right. 2nd question. On the order intake in the U. S.
Specifically. I think you talked about sort of 800 odd megawatts in the Americas. Could you give us a kind of guide as to, how much of the 4 megawatt platform featured in this order intake relative to last year? I just want to get a sense of what the mix change is here.
That I I don't have that on top of my head. Sorry. So I think we have to come back to you on on that to be more sure about the numbers. IO team is nodding hell. So we can definitely come back to you on that I don't have the exact numbers, but we see any clear shift.
And it depends a little bit. We still have them in the wind belt. The 2 Megawatt is dominant in the, what we call the rust belt, we start to say more of the frame Megawatt. And then on the coastal side, it's more of the free four megawatts. So you still have different markets within the market that that were the 2 Megawatt platform is more dominant and where the 3 Megawatt platform start to be dominant.
But I think it's better that we come back with a bit more exact numbers than that, I guess.
The next question comes from the line of Alan from
My two questions really, Marika, just in terms of the activities of levels and the differential between shipments and deliveries, are you sort of mentioned that you're using a balance sheetable inventory only against a firm order and so on and so forth. But how come are you with the kind of inventory levels that you now have in with the risk associated, let's say you're having these inventory levels in terms of we think price declines or in the risk of deferrals or push out of deliveries by the customers, let's say, in the U. S. With all those uncertainties, and perhaps even a risk of obsolescence from the perspective of changing technology and price pressures. So that's question number 1.
Yeah. But if I hear your question, fully, then that would mean if we would have all those uncertainties that would mean that we would be speculating in our inventory and how we build inventory. This is based on firm order intake which obviously we have full visibility on price, scope of projects and which products we are delivering. And as we are building based on those facts, we don't foresee those kind of risks to occur.
Right. I mean, at what stage do you start to say, okay, maybe we don't build further inventories from this level going forward. I'm just wanted to get your sense of how you're thinking about delivery versus inventories from in the context of your backlog. We've seen about 3 or 4 quarters now where you obviously built more and more inventories. I think that better order construction was talked about and so on and so forth.
So just wanted to get a good sense of improvement in terms of?
When it comes to inventory, it's obviously finished goods that we are looking at based on the firm order intake that we see. The we have been building for that purpose for the last two quarters, which obviously have served us accordingly. You also have a certain portion of PDC components in that. And you will also see EPC projects volume in that, again, based on farm order intake, But obviously, if things don't materialize as we anticipate, then I mean, we're not speculating in the inventories. Obviously, if things are not panning out as expected, then we will not continue to use the balance but it's based on firm order intake and nothing else.
Right. So not building anything for in fraught orders?
No. No.
Okay, great. And my second question is just on the capital structure and obviously there's been some expectations given your strong sort of balance sheet as well in of buybacks and so on, you know, second half, given where your solvency ratio is now close it is to the, let's say, 25% floor that you have set, does this kind of act as a bit of a limiting factor in terms of when we think about potential buybacks and and utilization of, let's say, excess cash on the balance sheet, or are you a bit more open to flexing this range as well?
Well, as I said earlier, this is something we will come back to on the back of Q2. Our methodology has not changed from that perspective. But also bear in mind, what we have also said is that, we will do a share buyback when we see fit, but we will also use excess cash for opportunities in the market, which comes from, as we have said earlier, acquisitions of companies within the service sector, but also technology. So that has not changed. So there's court to means of having this strong balance sheet, which has served us extremely well and continue to serve us well in the industry.
I mean, the 25% is that kind of custom stone for you? I mean, you lowered it last year or so. We're just wondering
What I want to be specific, we have targets for a specific purpose. And if we would have any change in those targets, we will get back to you on that.
The next question comes from the line of Klaskeel from New Credit Market Please go ahead. Your line is open.
Yes. Hello. First, a follow-up questions on these pretty low deliveries in Q1. Could you just confirm that there aren't any really any problems with your deliveries? It's just a matter of timing And therefore, if it's just timing, then it would be fair to assume that in the coming quarters, you will complete the projects and deliveries will go up and so will your revenues?
That would be my first question.
Yes. And we can only confirm that. Yes.
Okay. Pretty simple. Excellent. Next questions. In this quarter, you have a quite high percentage of EPC revenues in your your power business, I think the percentage is up from 4% to 20%.
What kind of margin impact, does that have in the quarter or yes?
Yes. So So I agree in this quarter, it is high, as you say, but you again, you will see a difference in the different quarters from that perspective. But also if in this quarter, in particular, we had a supply and install project that is qualifying for as an EPC project because we cannot use these turbines for any other purpose. And then the accounting principle therefore will be the same as an EPC contract. So it's a bit awkward in this quarter specifically.
But if you want to get more details, you can speak to the IR team on that. And we also have that in the notes, if you go through that in our report.
Thank you. We now go to the last question.
And the final question comes from the line of Jose Arias from Pestema. Please go ahead. Your line is open.
Good morning, everyone. I just had one question on your cost cutting plans. And I wanted to refer to the ambitions that some of your competitors have announced that particularly Siemens can assign them for about 15% of last postman revenues worth of cost cutting and that's by 2020. And I was wondering given that VESTA has not announced a similar target to the market publicly. If this is a reasonable level, that Vestas could also achieve by 2020.
This is a run rate level, we should expect for the company.
Yes, I, of course, for obvious reasons, I can't really comment on the competition. And I think when it comes to to cost levels and cut levels, we come from more cost to very different places where where, as you as everyone know, they are going through a merger and we are not. So I mean, we will continue with our efficiency programs both when it comes to cost of program on the, on the product side, on the supply side, And of course, we will continue with our technology road map, both when it comes to current product line out, but actually also when it comes to the next generation of turbine because the longer term, the product would increase output is actually, the best driver for margin generation. But you can definitely do not do only that. You have to work on both the cost outside and on the technology roadmap.
And of course, the internal cost savings, but I think it's very hard to compare to the competition also from the point of view that we are we come from very different situations. So with that, I would thank you very much your interest and you call in today. And I'm sure that we will meet all of you or at least most of you during the next week. So thank you for your interest, and have a nice weekend.