Good morning, everyone, and thank you calling in. Welcome to this, earnings call on the full year 2017. Let me start with the usual disclaimer slide and then go straight into the key highlights. So revenue of close to 10,000,000,000, EBIT of 12.4 percent, the free cash flow of 1,200,000,000 and investments of 407. So all parameters, within the, guidance was met So a very strong performance in the service business, 16% growth year over year.
And an EBIT margin of 20% for the year. Highest overall order intake on 11.2 gigawatts across the three markets. So again, really leveraging our global reach and that's a 6% increase compared to 16. Also then leading to an all time high combined order backlog of close to 1,000,000,000. Safety is a key issue for Vestas and it was very good to say that we again improved our safety performance on the target we have with 23 percent.
A dividend payment of 9 point to free the KK per share, very close to the maximum payout ratio, that we have. So overall, a strong balance sheet and a net cash position of 3,400,000,000 allowing us to do another share buyback program of 200,000,000. This is also the time year where we do our yearly, strategic updates and, both looking at how we have security there and how we look at it going forward. And again, we are firmly on track and strengthen our leadership position in this transitional market. And I will come back to that a bit later on.
As usual then, I will start talking about orders and markets and then Micah will come to the financials and then I will come back then on the strategy and outlook. So starting with the Q4 order intake at 3.8 gigawatts and an average selling price of 1,000,000 per megawatt in the quarter. Orders declined 6.88 megawatts year over year, but that of course was expected since we in 2016 Q4 at the large intake of PTC orders. But encouraging to see that we also in Q4 of 2017 had 264 Megawatts of PTC components order that then qualify for project in 2021. Otherwise, U.
S, Sweden, E and India and Canada were the main build those on the order intake in Q4. Looking at the ASP and the sequential design, decline, I would say that there are 2 main factors and 1 minor factor as we have talked about before. We continue a very competitive market also in Q4, leading to a price pressure. 2nd, we had a mix effect, both in relation to turbine model. So the relation between 2 megawatts 4 megawatts and, on the amount of power nodes that was sold in the quarter.
And the minor factor then is an FX effect of 0.01. Joining me, it's Maureen, to the data and order intake. And as I said, highest level for Vestas at 11.2 gigawatts for the full year. Looking a bit more in the regions, Americas was up 16% year over year. Mexico, Argentina main contributors in the U.
S. Also saw that even if a slight decrease In the quarter, down 21% very much due to the PTC impact. In EMEA, we saw the decline of 13% for the year and 9% in the quarter. We continue to take all from a broad base Sweden was one market that was contributing very positively, but we could not fully compensate for the 1 gigawatt order that we took in Norway in 2016. In Q4, it's primarily Germany and France.
That they contribute to the decline of 9%. Asia Pacific, very solid improvement of 64% year over year. And the decline of 14% in the quarter for the full year, the increase was driven by China, India and Thailand, and what was negative year over year in Q4 was Australia. Looking at the delivery then, overall, we see increased delivery in EMEA and Asia Pacific offset then as expected as well with the decline in US delivery. So starting with Americas, a 20% decline for the full year, a 26% in Q4.
Very much due to the U. S. And then compensated by growth in Brazil and Canada. EMEA stable, so plus 2% for the full year and 7% up in the quarter. You know, I'm in the UK, but the main contributor for, sorry, for the full year.
And we also saw a good increase in Denmark in Q4. Asia Pacific earlier up to 3% and the quarter increased 36 again, China, Mongolia, main contributors, and for Q4 also India and Australia. With your quarters in certain three countries during last year, again, a good benefit of our unique global reach. And we actually also added 2 new markets taking the total up to 77, I think. Leading then to a record high order backlog of close to 1,000,000,000.
The combined order backlog increased $1,670,000,000 year over year despite then a negative FX impact of approx at least $700,000,000. Looking at it sequentially then, we saw an increase of the sale of $100,000,000 in the turbine business to 8.8 and an increase of sequentially of SEK 1,000,000,000 for the service business to SEK 12,100,000,000. We continue to see positive development in the joint venture that we have together with MHI for the offshore business the company announced the 2 large preferred supplier agreements in the UK, taking the total of conditional and preferred supplier agreement with 2.5 gigawatts on top of the firm announced the orders of 2.7. Last year, we the joint venture also completed the first, the 100 and 6 before. So the big turbine project, and, the same turbine was then awarded turbine of the year.
We have also in line with the agreement. You want to answer agreement appointed a new management team. That will be effective from April this year. With that, I'll leave over to Marika for the financials.
Thank you, Anders. And if we have a look at the income statement for the full year, you can see that we are from an activity level down on revenue by 3%. That is also reflected on the EBIT that is down by 13% and consequently, the margin is down to 12.4 But we the despite the lower activity levels have managed to deliver yet another solid year for Vistas and we are well within the guided figures on the P and L side. I should also point out here that the results from the joint venture is negative 40, but still being negative, it is a 60% improvement from 2016. The income statement for Q4 is a reflection of the same parameters.
So you see lower revenue, as a consequence of lower activity in the quarter. And the EBIT is down. You can see SG and A costs going up by 17% and I will come back to, to the factors here on the SG and A side. That still is well under control. And in the quarter, we managed to deliver 12 0.3% in EBIT margin.
And here you see a positive from a positive impact from the joint venture of 10,000,000, because we have a timing difference of the TUR, but positive here in 4 of 2017. The SG and A cost is still well under control despite an increase in percentage and also absolute numbers compared to last year, same quarter. But again, still under control well under control and obviously something we continue to mitigate. This is, a reflection of also the lower revenue, which obviously have a consequence on the percentage per stay. But all in all, satisfactory development also on the and A.
Service, we continue to deliver a strong performance on the service side. And I think even more importantly is that we continue to deliver on the strategy that we have put forward on the service business. And you see an increase here compared to last year with 16% and that is mainly driven by the higher activity level you also have the, 2 acquisitions in these numbers. And then we have an EBIT number of 20.1%. So again, very solid performance in the service business.
We had a very strong Q4 of 2017 and that is also in the revenue as well as the EBIT margin that reached 23.4% in the quarter. The balance sheet, we continue to deliver a strong balance sheet and we have an increased net cash position, which obviously creates a lot of flexibility and also room for investment. And I think you have seen the latest one that we have performed and that's well within the strategic frame that we have. We have a net cash position, delivered here at 3,300,000,000, so very high. And the ROIC looks extremely strange, and it actually becomes negative due to invested capital being negative.
And I will not go into more detail on the math and how we calculate the roles. But I think you'll see that we have a very strong balance sheet and the solvency ratio is 28.6, which I will also come back to as on a later slide. If we have a look at the net working capital, that is still very satisfactory. And, we are performing the activities that we put in place in 2013, and that's is it possible to also have the net working capital well under control? If you look at the last 12 months, you see improvements is driven by trade payables and here the payables are clearly a reflection of the high activity level.
And that is offset by higher inventory. And then we have also said earlier that we will utilize the balance sheet when we see fit. But still within the control that we have put in place. Net working capital change over the last 3 months is you see positive developments and it's driven by a combination of receivables, inventory, and prepayments. The warranty provision and loss production factor is also well under control.
And, at satisfactory level, you see that Q4 will still consume less than what we provide for, although slightly up from Qs, 3 in terms of consumption. You see that loss production factor trailing below 2% here. So again, very good quality performance on the turbines. The cash flow statement for full year, we have said before that we continue obviously to fulfill what we have said to the market on the operating activities. And here you clearly see that we have a solid cash flow from operating activities.
And that leaves us with a free cash flow of $1,200,000,000 or slightly above, which we have already indicated there is a cash outflow from financing activities and that is mainly driven by the share buyback program and dividends that was based on the 16 results. Total investments is also in line with the expectations. And I will use the term control also on this one. So we deliver a net value of 407. And the negative 91 is the cash we received for the facilities in ARUs, but net value is 407 and underlying cash flow from investments is in line with 2016.
Well within the thresholds on the net debt to EBITDA. So we are, even further in negative territory. Obviously driven by the high cash balance that we provide. And the solvency ratio is 28.6, so slightly below the 30 to 35 that we have put forward. And we will revise the solvency target to a minimum 25 percent from the range that we have provided earlier to have the flexibility to to perform share buybacks if we still see fit.
The capital allocation, we returned to the shareholders close to SEK 1,000,000,000. And for 2017, the board recommends to the AGM to pay out a dividend of Danish krona, 9.23 per share. So we are, again, at the higher territory of the 25 30% of net profit. And combined with the share buyback of 6.94 the total distribution to shareholders during 2017 financial year will amount to close to $1,000,000,000 as you see on the headline here? By that, this will talk more about this.
So then moving over to the strategy and looking at overall growth prospects, which is forecasted to be very favorable for renewables. This is the slide from international end of the agency that works at the forecast in the electricity and duration from 16 to 2040. And of course, what we can say here is that renewable will have the majority of the growth call will decline. And that is why I say the biggest part that is on the decline. Also encouraging, of course, for us to see is that we will take a major share of the forecast, the growth for renewables.
We actually saw already last year that wind is starting to be a mature technology in the overall energy mix accounted for approximately 20% of all new build capacity and still from a penetration point of view, then only represent 7%. The market continued to be too fundamental, different drivers in OECD countries. It's about the replacement. So decommissioning commercial capacity and what drives this decommission is either financially end of life. Or CO2 reduction targets or of course a combination of the 2.
In non OECD, we see a market that is more new build to cater for the forecasted increase in electricity demand. What drives this development is, of course, the cost, the levelized cost of energy for wind and we see this is the numbers from Blum by New Energy Finance. And we see now that wind is very competitive against other technologies, both on the renewable side and on the more convergent side when it comes to levelized cost of energy. We expect this development to continue. And giving some historical numbers, we've, of course, seen a more than 80% decrease in levelized cost.
We are not in the last 20 years. And close to a 20% decrease in the last 3 years. Looking at the market going forward, And these are numbers from, make consultants that we view as relevant numbers for all planning assumptions. We see an onshore market with a CAGR of around 3% to 5%. So, a stable market with a decent growth.
Our strategic priorities in this market is as before, to generate best in class margin, and to grow faster than the market. And that we do, we're providing our customers with the lowest cost energy solution. Looking at the service market, we see forecast to high growth. Again, they still make numbers, a CAGR of 8% to 9% which drives the cost installed base and the continued penetration drives this market, but also new services. And also taking priorities there remains to more than 50% growth in revenue towards 2020 compared to 2016.
And again, to generate best in class margins. Looking at the offshore markets where of course we participate through the joint venture, that we have. We see a high growth CAGR of 15% to 20%, again, makes numbers, a little bit faced, you can see, so more modest growth until 2020. And then when markets outside Northern Europe is forecasted to pick up. We see a substantial growth.
The priorities for MHI Vestas then is to came a leading position and again, with a competitive offering on lowest cost of energy. Our strategy remains and we are committed to our strategy. We also, the definition of, of all definitions to be a global leader in sustainable We also remain in the financial definition of leaders in revenue and best in class margins. And we have also maintained our strategic objective but of course, adjusted, actions and programs underneath to reflect the current market conditions. Looking a bit back on the execution during 2017 then.
We continue to leverage our global reach, technology and service leadership and scale, and we are executing well overall on the threat the year. On the power solution side, we saw a 6% increase in order intake. And of course, in a market that is expected to have declined last year that will lead to a market share gains. Basically, cash margins, very important for us. As you know, we delivered 12.4 percent, EBIT margin in 2017 and well above the industry average.
On the service side, also a good execution with a 16% growth in revenue with solid earnings and an increase in backlog to SEK 12,000,000,000. And we are we are on track on a saving goal of 50 percent revenue growth by 2020. On the lowest cost of energy solution, which is, of course, to a large extent, on the competitiveness of our product program, We have 2 very solid platforms for onshore in the 3 megawatts that is now upgraded to a 4 megawatt platform offering double digit AEP increases. And we're also down then during last year, the 5th major upgrade on the 2 Megawatt platform, increasing AP up to 7%. Best in class operation, you heard Marika and me talk about the importance of a strong balance sheet many times.
I think that today in today's market more through than ever. And of course, we executed well on a free cash flow of 1,200,000,000 and also our control of our fixed costs. Last year, we also talked about building capabilities for the future markets and we started as well during last year. The first utility Gail hybrid project was secured with the end of the stores with the end of the stores and, and PV. We're also looking into the storage development and we have signed a development agreement with Northwell to to look specifically more in-depth on the battery technology.
And we very recently then did the acquisition of you to push the insights that will accelerate our digital solution offering, especially on the service side. And we continue to develop our co development capabilities. So to summarize, our position and also taking account our stake in the joint venture. We have summarized the year with the revenue on 10,500,000,000, clearly taking market share, a bit more an EBIT of $1,100,000,000 where we deliver best in class margin, that also of course enable us to invest more in R and D than anyone else in the industry and maintain a flexible asset light manufacturing footprint. Combined backlog then at the 22,800,000,000 And we have now, an installed base combined of 92 gigawatts and of that almost 80 gigawatts under service.
It will continue to be important to build on and leverage the key difference the items that we have with MBS test about global reach. About technology and service leadership and about scale. And if we look at the onshore scale, then We have now, gone up to 90 gigawatts across 77 countries. And with data inside from 38,000 wind turbines. So We have then also updated our long term ambition.
And when defining our long term ambition, refocus the market where wind has achieved merchant level in the vast majority of markets. And therefore, naturally drives additional volume. The industry is undergoing a transition towards a more mature market without subsidies. And this transition leads to a highly competitive market as we have seen that we believe will drive further consolidation. So the longer term beyond the transition, a more mature market will be created that creates opportunity for Vestas to leverage on our strength and leadership position.
And with that in mind, we have also then our long term ambition. Revenue to be the market leader and grow. A bit margin of at least 10%. Free cash flow positive each year, ROIC double digits over the cycle, as Mike has said, on the capital structure, we kept the net debt to EBITDA ratio and we have adjusted EBITDA the ratio of 25% and the distribution policy remains at 25% to 30%. So with that, I'll move into the more shorter term outlook and the outlook that we see for 2018.
Where we see revenue between 10,000,001,000,000,000 and EBIT margin of 9% to 11%. Total investments, approximately 1,000,000, a free cash flow of minimum 1,000,000. We expect the service business as before to continue to grow with stable margins. And you should also note that this of course this outlook is based on today's foreign exchange rate. So with that, we move over to Q
And we have our first question from the line of Christian Johansen from Ganske Bank. Please go ahead. Your line is now open.
Thank you. So first question is about your updated long term financial targets. What is the time horizon for this? And then specifically, your new margin target, should we read that as you aim for at least 10% EBIT margin 2019? Yes.
So I mean, of course, it's a long term. To start with the long term ambition. And we haven't set the time on it. I mean, we've described a market scenario that we forecast long term. So of course, it can depend could be different timing when we see that kind of market scenario.
But it's, of course, within our a strategic time horizon, which we have all we always work with a 3 to 5 year time horizon. But, I mean, I think it's clear to say that it's a market transition that we forecast and in that scenario. All right. Just so I understand. So you say within the next 3 to 5 years, you should have an EBIT margin of at least 10%.
What I'm saying is that within the scenario planning process, which is 3 to 5 years. We envision this market scenario that I described. And in that market scenario, our ambition is to have an EBIT margin of at least 10% to 7%. Okay. Thanks.
And then my second question, one of your competitors recently stated they have seen a stabilization of prices in Q4 versus Q3 Can you just confirm whether you've seen a similar development? Yes, I can't, of course, the comment on on our competitors statement. If we look at Q4 on 0.7 4. And as I said, I mean, we definitely say that it's a it was a competitive market, also in Q4 with price erosion. We, but of course, we also have the mix effect, as I said.
So, I mean, for Q4, it's very much in line with what I said, still a competitive market. 4 have 2 major factors in one minor, as I said, sequentially compared to Q3. And when it comes to longer term, And of course, the assumptions that we have, the back the ASP we have in the backlog and the assumptions we do for the year is reflected on our guidance on margins for 2018. Okay. So you do see further price erosion in Q4 versus Q3?
Yes, I mean, ASP is going down, of course, as I said, in Q4 to compare to Q3. So and that has a price erosion effect. It has a mix effect on the turbine side, and it has a smaller FX impact. And And then we don't guide on what kind of prices we see going forward from from, from Q4. But of course, our assumption, on prices and our ASPs reflected in our guidance for for 2018.
Excellent. Thank you very much. I think I mean it to be what's what to look for. I think I would say come back to what we talked about in the last quarter. I mean, we see electricity prices coming down, in the in the auction systems.
And I think We see definitely in some market they continue to go down. We see in other markets that they start to come down a little bit slower. And, of course, looking at the long term, the longer term price, evolution of the industry. I think that is a very important leading indicator to look at the prices in the auction. And when we get back to a more normal, development in ASP, is, of course, when we see we will continue to see a declining ASP based on technologies, which is what we been used to in the past as well in this industry.
But that is one. It's one key in cater, of course. And then we have a competitive environment as usual.
The next question comes from the line of David Busch from Barclays. Please go ahead. Your line is now open.
Good morning, Anders, Marika and Patrick. Thanks for taking my question. The first one would be on your comments around consolidation, you have in the past, stated, if I'm not mistaken, that you would pretty much rule out buying any of the Western OEMs, do these new statements around consolidation imply that you might be changing your view there. That would be question 1. Thank you.
Yeah. No, we haven't changed our view there. I mean, we are strategy is built on organic growth. And of course, as we said before, you would see more bolt on type of acquisition as we've done in the service space and and now in the digital space. But otherwise, our our strategy remains on organic growth.
We feel we have a very solid position and that we have a very complete both the market present and product present.
Okay. Thank you. That's clear. 2nd question on, your targets. Clearly, I think everybody will be happy to see you commit to a 10% long term EBIT margin target.
But am slightly puzzled myself with the FCF and the return on capital employed targets. Clearly, you have a negative capital employed base at this moment in time. Therefore, and not committing to a very strong FCF target, at least, implicitly, you could put one on one together and conclude that your working capital, or indeed your fixed capital investments, are to pick up quite dramatically, thereby, bringing ROIC back to the sort of double digit range, whatever that might be between and 99%. But still, it would imply sort of that your capital base goes up by quite a lot. Is that the right interpretation here?
Or how do we how do we square that circle?
No. I understand where you're coming from. And obviously, as the the net invested capital is negative and we're coming from a a very high level of ROIC. I can understand from a mathematical point of view, where you're coming from, David. Our intention is obviously with the double digit ROIC is to say that we're, I mean, looking looking at the margin levels that Andreas are provided.
So still very solid on that point of view. Positive cash flow and if we are not precise enough, it is obviously very hard to be precise on the work or the free cash flow. But I think that we are also stating clearly on the net working capital, although not guiding for it that we have no intention to lose the control that we have and that all the elements in the working capital activities remain. And that's also why we also in 2017 are delivering a very solid networking capital. But what what I've said previously is obviously that from time to time, it's more efficient to use the the balance sheet in terms of building up inventory.
And that is also something with the very strong balance sheet that we have that we actually have the possibility and capability of doing and that will definitely continue also going forward.
Okay. Yeah, I understand that. I just don't, I guess, if I want to put it bluntly, don't see the point of presenting to sort of metrics in the in the long term, ambition framework that are, so difficult to interpret given where the starting point is. So I guess we'll discuss a smaller day. If I can ask one final question, please, regarding 2019, and the potential margin level in 2019, what sort of price erosion can you handle on the order intake in 2018?
Such that margins in 2019 do indeed exceed the midpoint of your guidance for 2018. So the 10% which would also be in line with the long term ambitions. Thank you.
Yeah. And I've obviously where you're coming from, also on this one, David, but I think it's it's it's not as I'm just have described. It's obviously not only price that defines, our, EBITDA target or the revenue target. And we have a good order loan, both on the, the, VTT side as well as the service side. So obviously, service business plays a very important role in our forecasting of what we can deliver.
And then obviously, we have a big element of the cost out we have a big element of the sale, controlled SG and A. And I mean, the power rating as Anders was alluded to. It's obviously you mitigate, part of the very competitive market with continued continue to develop very good technology that offset part of that. So I mean, all those elements continues and our best estimates is the that we we have a a solid ground to say that we over the will develop a minimum 10%. And obviously, we have not indicated 2019, we just guided for 2018.
All right. Thank you very much.
The next question comes from the line of Casper Blum from ABG. Please go ahead. Your line is now open.
Thank you very much. Yet another question regarding ASP. Looking at your order intake ASP of 0.74, it's down 22% from the 0.95 a year ago. Can you give any sort of flavor to the different elements in this? How much is due to larger turbines?
What's due to scope of projects? Pricing. And I think you mentioned FX of 0.01. Can you sort of put a little bit of magnitude on those different elements?
Yeah. I mean, what I referred to was the sequential then between 0.8% and 0.7 74. I I think that, if I don't remember incorrect, I think that 0.95 was not really represent view of that year. We had a bit of a spike there as well. So I think it's a you have to look at this much more from a trend point of view as we talked about before as well.
And my comments that I made was comparing Sequium actually then Q3 to Q4.
Okay, fair enough. And then question regarding your cash flow. Marika, you mentioned that the payables are helping the cash flow here in quarter 4. Given the changing in the pricing environment in the industry, has there also been changes to the pricing conditions so that, for example, you're receiving a a higher portion of of the total price as a prepayment?
No. I would say it's it's that we have been very consistent on that cash And it's also fair to say that we are very glad that we've been very consistent on the payment terms So they remain, as they have been previously. So, that is obviously one enabler for for us also from a certainty point of view. And the as I said earlier, the payables is just a reflection of the very high activity level overall in the company in pretty much the same behavior as previously. And we also have negotiated good payment terms, but that has been non previous and part of the program as I mentioned.
Okay. And then just one final question also regarding the 10% long term EBIT ambition. You you say it's it's sort of in the in the 3 to 5 year perspective. So so should we read it sort of as an average, that that over those, you know, 5 3 to 5 years combined, you will have an EBIT margin of 10% at least, or should we view it as a floor for each individual year in the period?
No. No. But you should view it exactly as I said. I mean, it's a it's a long term. It's all long term financially, ambition that we have adjusted.
And and that is, yeah, that is what it is. And the reason why we have it there is, I mean, generally speaking, come back to what I said before that, the the We talked about the transitional phase of the market that we are currently in. I think we are all well aware of that, and that's very evident for the industry. And that puts some pressure on us and our payoffs, but the good side of that coin is, of course, as I said, that we see that the competitiveness of wind is then increasing. And as I said, the electricity prices are on merchant levels in some markets or many markets already today.
And if we look at that longer, term without setting a date on the longer term more described in the market. I think that, of course, we'll provide a floor for electricity prices generated by wind. When we are at merchant levels in the majority of the more it. And in some markets, even at the the running costs of fossil fuel, then of course, that should provide a natural floor for, for electricity prices for wind. On top of that, you you see a good we have a good technical sort of technical visibility.
We have solid plans on what we on to continue. The Tier the development that we have seen during the last couple of years. And of course, we have good visibility of our service business where we have a fairly, I would claim at least ambitious growth target in the up to 2020 time period. But as usual, of course, we work with all the levers that we control, and that's our focus on. And then we have to do assumptions based on what we see in the market.
Thanks. That's all good, but but do you still though you don't want to sort of commit to whether that the 10% is is a floor for each year or whether it's an average for the period?
I mean, it's a long term financial, target. And so it's not the floor per year or divided into a specific year.
The next question comes from the line of Akash Gupta from J. B. Morgan.
Yeah. Hi. Good morning, everyone. My first question on this year, 2018 guidance, if I look at the range, which is based on the current FX rate, and looking at the what is you have already secured in your backlog. Could you help us provide what is the coverage as of today in terms of where you stand with existing orders and how much you will be relying on in for out orders at midpoint of the guidance because there has been a disappointment in 2017.
And my second question is on the U. S. And what sort of activity you are seeing there because we haven't seen any orders or also large orders since the and since the tax reforms that has been taken place last quarter. And also, should we expect a strong Q1 for revenues? Because inventory is very high and you earlier indicated that this inventory will be delivered in late 2017 or early 2018.
If we thought, with the with the guidance of 9 to 11, obviously, with the strong order backlog that we have both on the service business as well as the VCD business. We have a good visibility over the over the revenue for, 18. And that's also why we have provided the the guidance of 9 to 11. Obviously, you will have some in for out orders also in 2018, but Certainly, we have a good visibility with a strong order backlog, that we have in place. And then you will have, you always to simulations as we said previously on headwinds or tailwinds that we could have during any given a given year?
Yes, a bit on the U. S, I think there were several questions on that. But if I start overall, on the order side. As I said, I mean, we have announced the 200 and 64 Megawatts. I think it was for, PTC orders for the qualification rollout 2021.
I must say I'm very confident with our position overall in the U. S. Also considered during the PTC order that we announced last year. And actually also if I look at current performance in the market, working at both the, what I call the the end of the association of AI in in the US on delivery during last year and according to Bloomberg, we maintain our leading position also when it comes to actual deliveries. So I mean, all those will by nature always be a bit lumpy, but, if I look at the order intake, we did the last year, if I look at the additional PCC components and if I look at the old position in the market, I must say overall, I'm very pleased with, with our precision and our performance in the US.
A bit to your question then on on seasonality of the U. S, I think it's definitely fair point. I mean, the last So 2017, Q1, we of course had a very high activity level of delivering PTC components, which we will not see a repeat on this Q1. So from that point of view, we say that this year will pan out more like like a normal distribution over the quarters compared to last year where we had a very high Q1 due to the the PSA component.
And just to follow-up on this MHI West does offshore joint venture. If I remember correctly, you were guiding for still breakeven in 2018. Is that still the case? I mean, can you update us what should we expect as a joint venture contribution? From this year because all I'd like to understand is that can you draw your earnings together with lower share count because you're launching a buyback now and maybe maybe further buyback down the year.
So, I mean, trying to figure out whether you can grow earnings this year if you have a good contribution from the joint venture.
I hear you. And our what we have said earlier on the EBITDA breakeven in 2018 and net profit breakeven in 2019 remains.
Thank you.
The next question comes from the line of Claus Alma from Nordea. Please go ahead. Your line is now open.
Thank you. Also a few questions from my side. The first question goes to the auction system. In the annual report, it is mentioned that prices tend to stabilize after the 1st auctions or couple of auctions. Have you seen this in some of the markets we've recently implemented an auction system will be the first one?
Yes, we've seen, of course, that's, we've seen, of course, a typical trend has been that the initial auction has taken a very large decline in in prices. I mean, we've seen everything from 20% to 40% in the first auction. I would say, depending quite a lot on the volume offered in the auction, the type of price line. And after that, we have typically seen a continued decline, but at a much lower rate than the initial auction. So That's as far as we have seen in the market.
I think the only the only market so far that actually have seen an increase on auction prices is probably to my recollection, it's probably Brazil. And And there is a lot of other specialities in the Brazilian market. So I think we shouldn't read that into a global trend. So speak, but definitely we say that the steepness of decline is the less, so to speak, when you say more auctions coming online. And and then look for looking forward Of course, I think it's for us as well, definitely a key indicator of of yachting the market.
And a leading indicator of yachting the market. In combination with additional volumes, And there I think we see some positive signs still to be confirmed, but I mean, one such an example is of course the au that is discussing now to increase the 27 percent renewable energy targets by 23, the parliament has voted to increase it to 35. We still don't know what it will be, but the basis of that discussion is very much that we did the new level of pricing for renewable it's actually for the same amount of money, so to speak, possible to increase the target. And I think that is is a healthy sign that a more competitive price actually drives higher volumes in the longer run. Then of course, we need to see that being coming in.
We need to see being confirmed and we need to see those volume translated to auctions. But that would of course increase the market for renewable in that time frame in Europe with about 80 gigawatts or something approximately. Okay,
thanks. And then my second question goes to your 2018 guidance, this 9% to 11% EBIT margin, which, as we've discussed before, is below the long term target. What's in that scenario? We'll take it to the lower end of the range and, you know, and Synchrony goes to the upper end of the range.
Well, I would would say what we have said earlier. I mean, obviously, we we have a good visibility as we have the big order backlog that we have both for the service and VTC business. And then you will have operational headwinds or it's the in for out doesn't materialize as we expect them to materialize. So I would say it's nothing that it could be some uncertainty on the operations in terms of not fulfilling or not being supplied as we expect and then the infrails, those 2 are the major elements for being either or.
How is the currency trend impacting 2018?
I mean, what we have now provided for is with the the current exchange rate and obviously that is a weaker dollar and from a translation point of view, a weaker dollar is not very favorable, uh-uh, all in all for for our business. But then we have, have given the guidance based on on the current exchange rate.
Sure. I'm just trying to figure out the year over year impact and how much has the currencies, diluted the EBIT margin or expected to dilute the EBIT margin this year?
Yeah. I mean, that's also considered in the guidance that we are providing, but obviously the translation impact is bigger on the revenue side as we have a big portion in the U. S. As well. And then smaller could be a slight positive on the cost side.
And a smaller impact on the EBIT, just to give you a flavor.
Okay. Then just a final question. This order intake megabat ratio 0.74. Is that the level we should expect for 2018, too?
I mean, again, we don't We don't forecast, on the the ASP. So, so, I mean, the the the the AS, as Marika said, I mean, the the margin guidance for 'eighteen, of course, reflects the ASP in the backlog and reflects the ASP that we that we foreclosed for the inflow in the year.
Okay, thanks.
The next question comes from the line of Dan Togo from Handelsbanken Capital Markets. Please go ahead. Your line is now open.
Thank you for taking my questions as well. I'd like just to get back to the ASP here and I stand, the sequential explanation you're giving on this, that the 0.01 is FX and price and mix more or less shares, the rest but could you give some flavor on the mix? Is it related to any particular regions or And is it a one off in this Q4 or will we see this mix effect continue into 2018? That's the first question.
Yeah. I think if I try to divide it into sort of a 3 and then maybe something that can vary a bit between the quarter depending on product. So if you look at Q3, on on the auto side, a bit more than a bit more than 60% or around 60% was on on the 4 Megawatt platform. And if you then look at it in Q4, about 70% of the order were on the 4 Megawatt platform. So when you have when you then have a shift on that you take more orders of the total order share.
So it's speak on the 4 megawatts and the 2 megawatts. And of course, you get more megawatts, but not necessarily in the same extent the higher price. So And that trend that we, of course, we've seen for some time that we see a shift from the 2 Megawatt platform to the 3 Megawatt platform generically speaking. But of course, that's also geography. So if you have a quarter where the order intake is extremely strong in the geography where we primarily sell the 2 megawatts in the quarter, you can have that long term trend can reverse in a quarter, so to speak.
So But generally speaking, of course, for some time, we've seen a trend that the 3 megawatts takes over volume from that is now 4 megawatts that takes over volume from the 2 Megawatt platform. So that's more of a over long term trend. That again, of course, the vending or geography can vary a bit between the quarter. So the other part is a bit more technical, but power mode So I mean, for most of our turbines, we have the power modes that fits in certain markets. You can use them and in certain markets you can't really use them depending on the wind projects.
And the power mode is typically, for example, that you we have a 2 megawatt that you can run at 2.2 as a power motor, and we have the same on the 3 and we have the same on the 4. And of course, if you then in the quarter compared to the sequential quarter, have a higher order intake on power modes, compared to non poll notes, you also have any impact. That, I would say, is a bit more lumpy. It's it depends on when we release those power mode updates on the product when we can take in orders.
Very helpful. Thanks a lot. Now on the service on the service business, an EBIT margin for, for, of 23%. It seems extremely strong. What explains this?
I mean, I wouldn't maybe have expected that we due to the price pressure we are seeing on ASP and on the whole value chain here also could expect some pressure on service. But are there any sort of say price pressure on the service that you provide for clients at the moment or can you basically sell your service at the same price that you could let's say a year ago or even a quarter ago?
I would say that the service business is, also very competitive. We are in a good position and with the different offerings that we have obviously faced a very stable ground for us in terms of EBIT. And then the volume is obviously also important when it comes to to the EBIT. And, I would say that Yes, it is competitive, but we still have, a very high because the more population you have, obviously, that creates opportunities for cost out in the service business. So, the levels we are at now, we think is, still very stable.
And obviously, we continue to optimize the service business, not the least from, a portion or percentage of the total revenue to continue to being a stable company?
Are there also any mix effects here? I mean, clients stepping up in the service products?
I would say you see a mix of that, but I think it's with the different offerings we, we can provide. Obviously, with any financial investors, it creates a lot of stability as we give a certain guarantees for output as well. And we have very high quality on the product. So it seems like the tenor of the new contracts are increasing.
Okay. And then a question on cost out and in the long term what kind of assumption do you make here? Because of course, when you look at the way the ASP is developed and then the 20% price reduction over the past 1 year and a half year, should lead has that led you to be more aggressive on the cost outs? And what are your assumptions here for the long term targets? Are you just cost out to more or less be on par with what we've seen historically Permika what?
I mean, the cost out is Eastern has been a very important element for us. But I think that's what Andres said before is that we have prepared ourselves for the last few years. For the market we're in, being a subsidy, being very competitive. So it's all about the cost but it's also about having a very efficient product portfolio. And that is the other enabler is to basically provide more, more outputs with fewer turbines.
And so we have a very high focus. And remember that we invest a lot in the on the technology side. That is obviously also a mitigating factor. And I think it was actually used. And if you look at the ASP over the last few years, it has been trending down.
So it's clear that's part of the levelized cost of energy and that's part of the market conditions that that has been there. And now we're in a transition with a new market with the auction and totally subsidized And but we have been working in the same pattern, for the last few years and cost is obviously a very important element.
So you're not just to understand it. You're not more ambitious now on cost out than you've been in the past to just continue along the path basically.
I think we we have been ambitious and we have been aggressive on cost out. I mean, it's all about profitability. So obviously, that is a very important element.
Yes. Okay. And then just a final question here on the JV turning profitable here in Q4. But is that just a one off due to some timing of some orders? And should we expect because, I mean, this catch up a bit earlier than what I believe you have previously communicated on when we should see the JV, JV's profit wise?
Absolutely. So it is a timing. So it's when we sell the 3 megawatts platform, so this is the the ramping project. And now in, in, in Q4, the joint venture have POA what we provided them with before then, but we have a negative impact in the joint venture. So it is only a timing element.
The the what we have said earlier in terms of EBITDA breakeven of 'eighteen remains.
Very helpful. Thanks a lot.
The next question comes from the line of Markus Verlander from Carnegie. Please go ahead. Your line is now open.
Thank you. Just one question for me. In previous conference calls, when we've discussed guidance, you've sometimes suggested that you aim for the higher end of the guidance range. Does that go for the 2018 guidance as well, or have you been a little more aggressive in your guidance this time?
Oh, I mean, we have given you the best assumptions that we could have, and that's the 9 to 11 obviously, we're striving for the higher end of the guidance. So that that is nothing has changed from that perspective.
Thank you.
The next question comes from the line of Alok Katre from Societe Generale. Please go ahead. Line is now open.
Hi, Alok Katri. Thanks for taking my questions. Well, my first one, I have a few as well. Is, I think if I heard freight, I think Henders wasn't committing towards a through cycle versus point in time, sort of, margin target whereas Marika, I think you mentioned over the cycle, we will develop a minimum of 10%. So I'm just wondering whom should we be looking at between the both of you from this perspective.
And if you say it's a 3 to 5 year target, is a minimum of 10% you've done 12% in the last 3 years. So if I take the rolling 3 to 5 year sort of period, does it mean you should end up somewhere close to percent over the next 3 to give you an average of 10 over the cycles. I'm just trying to understand a bit more in terms of how we should think about the margin target. So that's question number 1. And I'll follow-up with the others.
Okay. I'm not sure 100% understand where you're coming from, but I'll I'll try my best. So what I said is, obviously, what Anders have or VISTA have provided as medium term guidance is the 10% and minimum 10%. That also means that in certain periods, you can potentially be below 10% but we're striving for and we have not been expect in timing of the minimum ten but I don't think you should look at the average 12 month rolling EBIT either because the conditions in the market, is is very hard to extrapolate. But I would also like to say, we have provided a minimum 10% medium term.
And obviously, we make assessments and we make, simulations on how to to to get better. And I think now it is probably that I say a 3 to 5 3 to 5 year target and Anders is talking about the long term that we, could potentially you could potentially see this presently. I don't know if you wanna elaborate more on this.
No. I I I think, you know, I can't ask go back to what I said. I think, hopefully, it was fairly clear that on the minimum 10% target, we that is a market scenario that we look at within our strategy period. Our strategy period is unchanged as before. Free to 5 years, but of course, it depends on that market scenario that we we see that as a long term target after the transitional phase.
And I mean, we I I I can't really put a date on that. And in between then, I think we have Of course, as we talked about, we guide for 'eighteen. We will come back at the time for 'nineteen and And if the question then is, can we at any time in between there go below our minimum ten? Yes, we can because, of course, in 2018, we have a low scenario of 9. So that is, of course, then, possible.
Sure. Thanks. So so does this include in the context of slide 26, does the 5 year period will include a upcycle in the U. S. And a decline post 2020.
So your 10% target that you sort of said, if it's on a 3 to 5 year, business cycle basis, would it would it be fair to say it includes a period of decline in 2021 onwards as well?
I mean, I I I think what I said on the on the make numbers here is that I think that this provides a good basis for our forecast and and our strategy work. I can't really say that if between the different yields that this is accurate. I mean, I I that I can't do, but if I look at the at the the planning cycle, if I look at all strategies and areas and we have many of them, like, of course, you have to have when you look at 3 to 5 years. Then I think this is a good estimate of the overall market in the period and the growth rate that we see. Without going into what I believe, if it's right between individual years, so to speak.
I mean, remember that the the forecast, I think for for 16, order numbers for 16 was 53, a gigawatts and then 1746, So I think also in in that kind of decline that that was forecasted there or was actual here. We can do a fairly good performance.
Okay, great. And then my last question on this one is it does with your longer term as you mentioned in your annual report that your targeted leadership position in both onshore and even in offshore segment. Clearly, we are seeing more consolidation. I guess, you you remain, let's say, committed to not doing a larger deal, meaning the consolidation will happen around you rather than with you being involved. In that sense, do we then expect given this consolidation, do we then expect Westpac to become a bit more aggressive if competitors force your hand in terms of the pricing?
And bidding? And then how does that square with the 10% margin? Meaning, I'm just trying to understand what sort of competitive dynamics have you included in in in this target,
I mean, worsening, but improving. Yeah.
I mean, you're absolutely right. I think from Avista's point of view, if I take that first, which of course is then 100% of the onshore business, 100% of on the onshore service business. We have been very clear that our that's all launched on will be active and our vision is to be the market leader in revenue. And that absolutely remain. I think for the offshore you want to answer to be clear, and I think that is also on the slide.
They talk about later and not necessarily the leader in offshore. But so I think that is a distinction there. And which from a, an owner point of view, from Vesta's point of view, I think it's absolutely fine ambition for the joint venture to have. And that's, of course, yes, to be really clear on that part. And when it comes to the unbalancing, volumes with margins in the over this time.
I think, I mean, our strategy has always been about profitable growth. And, and, and, I mean, that remains. I think that's actually also evident in our numbers. If we, if you compare our numbers to industry average numbers. I think it is clear that that there has been our focus and will continue to be our focus going forward.
And that is, of course, a constant thing that you have to monitor where you see that the market is going? And because and as I said, I think already in the last call, I mean, a stable volume that we have, that we have. I think also also gives a lot of benefits on on the cost side and the cost outside. So that's definitely a continued interest for us to have the right balance. I mean, we want to drive a profitable business.
And, but that is also, and for the cost point of view, it is also important and to keep the to keep a fairly stable volume. And then you have to balance it with how the market develops.
Okay, great. Thanks.
The next question comes from the line of Martin Wilkie from Citi. Please go ahead. Your line is now open.
Thank you. It's a couple of questions, please. The first one is just going back to the U. S. Markets.
Obviously, we saw other players taking a good chunk of mark orders in Q4. Now I appreciate your point to sort of lumpiness in order as opposed to anything really changing there. In terms of the pricing, do you feel that the U. S. Market was more competitive than other parts of the world, just to understand if some of those orders were perhaps won using more aggressive tactics on price?
And so that was the first question. The second one was around, you've obviously commented the auction price can be a leading indicator for how turbine pricing might develop later. Obviously, we have the next round of the German auctions kicking off around about now, there does look to have been a change in some of the rules as to how the German auctions will take place in terms of not having these community or system wind farms, do you have any expectations that German auction pricing can get better over the next quarter or so? Would be interested to hear what your thoughts are? On that?
Thank you.
Yes. So, but if I start with S, and I think, I mean, the The the overall answer is that, I mean, you we talked about the auctions, and I think, as I said before, I mean, you were with very large tenders and a fairly long term horizon in the current PTC cycle. Has exactly the same characteristic as an auction market. So even if it's not by definition, an auction, I think the characteristic is very much the same as an auction market. And of course, the other thing with auctions and less and less feed in tariffs is that we see more and more of a global price picture with very with very few, regional differences.
With the exception of China, but that's very much of a scope difference as well. But apart from China, I would say that we see a more and more of a of a global picture when it comes to pricing. Then I mean, of course, as I said, from Avasto's point of view, and again, I can't, I can't, talk the competition. We're very happy with Hope Station in the U. S.
I think both from a market share point of view, we're happy to keep what we have so to speak. And and also if I look at the potential orders that we have because they are all potential that we have secured with the pay say I'm happy with our position. And I can't really comment on what competition could do or not do short term. I think your question is, of course, extremely interesting as you say. I mean, it's everything else equal.
Of course, the the seats and wind part has been negative for the industry in the sense that from the pure sense that they didn't need, permitting. And and if you didn't, and that also then allowed 4 years to build instead of if you need permitting to bid, I would say that you probably have around 2 years to build. So the negative part where the season wind park has been a volume crucial in time, so to speak. And And therefore, of course, also, theoretically speaking, more opportunity to to use further technology in those types of bid. I think the answer to your question on what will happen now because the the the latest round was on on I was supposed to say normal, but with permitting, the that I think we will know actually within a week or so.
I think there was was, I think the auction was last week. And, and, of course, we participated together with customers. And I think the result of that will, I would suspect, will come out within a week or so. And then we will see if these new round of auctions have actually had an impact on the price.
That's great. Thank you.
The next question comes from the line of Gabriel from Macquarie. Please go ahead. Your line is now open.
Hi, guys. Just a some clarity on the order intake ASP sequential decline, if that's okay. You mentioned FX resulted in a 0.01 decline out of that total, 0.06. So are you saying competitive pressure and mix impact make up the difference on an equal fashion, are you 2.5 each or is it more sort of favored to competitive pressure, say, on a 3 and 2 basis?
No, I would say roughly speaking half and half. I mean, you get into very complicated definitions because, of course, they go into each other to some extent. I mean, take the, the, the, what I talked about the poll mode, for it as an example. If we are great. If we sell more of a power node, let's say from 2 to 2.2, as a power mode, of course, has advantage that it's a limited cost increase compared to, I mean, a 4 megawatt turbine is more expensive than a 3 megawatt turbine.
So But if we if we then, can't keep, so to speak, in our pocket, that foam or upgrade? Is that then a price pressure or is it something else? I mean, when you get into to you have a certain overlap, of course, between these, depending on the definition. Yes, that's an example. So I think roughly speaking, they are about of April's importance, but you get into very difficult definition.
Yes, okay. Understood. Okay.
And the second question is on the cost out statements that you guys make. Can you perhaps give us some examples of where you may get easy wins or early wins here? Is this Is this a case of establishing new suppliers from new regions, perhaps from Asia? Or are you seeing new innovations coming from your supply chain? And how much of the commodity price pressure that we might be seeing here in the supply chain be a headwind in those negotiations with your suppliers?
Well, if we start with the last one, which is the commodity pricing, obviously, we have a fair share of a deal in our products. So that is probably the commodity that we are most exposed to. Here, we are mitigating with indexation. So or we pay by, as we have said previously, obviously, we're not immune. But when it come comes to cost out activities, it's a good mix of what you mentioned.
So part of it is technology development that gives us an opportunity, but it's also going from local to local local that gives us an opportunity to do further costs out. So basically, we are I mean, the program that has been running over the years were further looking at activities. So it's very well defined. There's nothing random we're tracking on a monthly basis, how we are performing on the cost out. Cost out targets.
So I would say it's a rigorous process and we are, as aggressive as we have been in the past to identify further opportunities. But it is a well identified program. So it's it's not a guess. It's really solid activities behind the all the cost out elements.
Okay. And and is there any part of the value chain that is that is giving you the best, kind of a cost out, is it blade? Is it is
it is it part of a
value chain that you can really focus on going forward?
I would say that the cost sales is obviously a the low hanging fruits that we had from the beginning, that also was volume dependent. But I think also one element on the cost out is really that we are global that we are big. That obviously creates big opportunities for us. But also going forward, you will see a lot of the costiles coming from this time.
Okay. Okay. And a final question on the acquisition over the weekend, perhaps some comments around the rationale. I know it's a small relatively small acquisition, but you give us some color as to what that, that business can provide you guys in terms of new innovation?
Yes. We're happy to. So, of course, we see it as a really good fit. And of course, as you say, from the size point of view, it's fairly small. I mean, it's a very R and D focused company, that has a really a good product offering already today, in the digital, the energy management space, very much focused on renewable, But of course, lack, the sales channel for those product packages that exist today, which, of course, we provide from Vestas.
And that's on the revenue side. It's also, very interesting from a cost point of view to further optimizing the cost on the service business with the tools that they have to look at, at efficiency, gains in the forecasting pot that we can do on the service side. So I think it's a very good complement to the skills we already have. I think I talked about before on the service side that we have, of course, the data average 152100 sensors from Totalbind, 38,000 turbines under service, ending data 20 fourseven. And and we've done an excellent job on on the digitization on that data when it comes to designing new turbines.
We've done a really good job on that data analyst when it comes to the performance of the existing fleet. The preventive maintenance in the service packages, the guarantees that we can give, but we also say that we can do a lot more on the increased performance side. And then we need more data analytics type of products and software. And that is exactly where this company fits in. Okay.
Thank you.
And the next question comes from the line of Peter Testa from One Investments. Please go ahead. Your line is now open.
Hi, thanks very much. Just three questions, please. The first one is, is if you could give us someone standing of looking at 2017, what the turbine mix was on deliveries, please, between 2, 3, and 4 Megawatt.
We will give that task to Patrick as I ought to come back to you with it. So we don't say anything
Okay.
Incorrect. I don't have it on top of my head.
Okay. And then looking at inventory There was a notable increase in finished good inventories with sales subsidiaries and also work in progress. I was wondering if you could give any comment on that? And then also on the opportunity to spread production across 2018 as you did in 2017, whether you give a grade or a similar opportunity in that regard.
Yeah. And the the inventory increase that we have during 2017 has been deliberate. So we have used the balance sheets where we saw an opportunity to increase the finished goods instead of investing in additional capacity if we are when we see fit. And that is also how we intend to use the inventory or the working cap build a possibility going forward. What we have, what we anticipate and what Anders was alluded to because we had a very high activity level in Q1 of 2017 because of the U.
S. Orders coming in very late in the and delivered Q1 2017. You will obviously not see the same kind of activity level, but remember also end of 2017, we are flushed out a bit of inventory because of the activity level. And but I would say this year, being 2018, you will see a fairly normal distribution of the quarters. That being said, that the the normal distribution is a lower activity at the beginning of the year and a higher activity level at the end of the year.
And that we will use the inventory possibility if need be.
Okay. And then just on realized AS P. If you look through the quarters in 2017, it's sort of moderately come down and there's been kind of an opening gap between the order ASP and the delivery ASP. And I was wondering if you could give us some sort of thoughts as to how long the timeframe should be we should think about in terms of those two numbers starting to converge again or and to which the backlog ASP becomes the delivery ASP.
Okay. So I mean, that is obviously, you have a timing element to the between the order intake and the deliveries. And I mean, that depends on how well and or if we continue to being as good as we have been on the on the calls out elements and also the part of the technology development that you have seen. So over time, we anticipate that it will balance out.
Okay. But to be more specific, I think ASP in Q4 is around $93,000,000 on delivery and it's about $74,000,000 on intake. I was just trying to understand how long you felt it would be before the delivery ASP is roughly similar to what you're getting on the intake.
I'm not sure that we would, give that. I mean, the only thing I can say is that it will, balance out over time. Obviously, it will move depending on the backlog level that we have.
Do you think that will
stretch into 2019 before that happens?
That depends. It's hard to say the exact timing, obviously.
Okay. And the last question, just on the offshore business. Given your building up your capability there, I was wondering if you could give any thoughts as to your ability to bring sort of very different turbine cost into that market versus peers to help you lift that business off?
Yeah. I I think that, overall, I mean, we actually have a very competitive offshore turbine that that, of course, is the basis for the joint venture with the VA 164 sorted out as a 8 Megawatt and now been upgraded to a 9.5 Megawatt. So I mean, the technology development in offshore, very similar to onshore. So I would expect also in that segment, we will continue to see increases in rate things over time.
Next question comes from the line of Inaki Das from Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Yes, hi, good morning. In a fairly long call, so I'm going to keep it short. Thank you so much for taking my questions. The first is a very simple one. I think I missed it.
Did you mention how much PTC component orders you had at the end of 17 for the 80%, bracket? That's my first question. And my second question is just around the consolidation aspect you did mention consolidation and then denied that you will not do anything, and that you've taken some of these dynamics, but how would you react if any of the players were to come and try and buy out one of the smaller turbine manufacturers in Europe. What would be your sort of reaction to that?
The first question was simple. 206 4 Megawatts in 80% versus a component order. The the second question, I I would say that, as I said, also before, from a versus point of view, our strategy is based on organic growth. And the reason for that is we have a very strong 2 Megawatt platform with a large scale and good volumes. And we have a very strong 4 Megawatt platform also with a large scale and a good manufacturing footprint.
So from a consolidation point, from a Veritas point of view, we see limited gains on the product side. Also on the market side, I mean, we have a geographical coverage that is is really solid and best in the industry. Of course, there's always some markets you can do a little bit better on. I'm not saying that, but I mean, that's always the case, but it's very hard to see, an acquisition that would complement the capabilities we have, to the extent that it will justify the price. I mean, it's that's what we see in today's market.
Then of course, and that's why we have an organic strategy and being pretty clear on that. If that will change for the future, I mean, who knows, but that is what we see the situation today. But having said that, I think it's, yes, I think it's fairly natural that we see this consolidation happening in the market. And of course, we stated it for some time now. And And I think that, it's a fairly natural evolution of the market that, that, that will continue.
But, that is a forecast, not something based on no, in fact, but the more, looking at other industries in similar type of situation, I would say it would be a natural thing for the market to further consolidate.
Maybe I'll ask a follow-up question, something unrelated to this, but just on ASPs, if you look at the market, you know, you've got a 30 gigawatts ex China market. You guys are, you know, 1 third of it at 10 to 11 gigawatts. If you take the other to bigger suppliers, you guys almost control 75, 80% of the market. So I was just wondering what you already at levels where wind is close to merchant power prices, if not cheaper. What's why aren't the 3 big suppliers being more disciplined on ASP, because you are kind of the market, and it seems like there's no need to go dramatically low immediately on the cost of energy.
It can happen over time, but why not sort of push back a little bit on the ASP decline?
Yeah. But I mean, of course, I can only speak for Vestas, and I can't really speak for the competition, but So you have to ask them. I can only speak on behalf of Vestas there that, as I said before, we are disciplined. We want to run a profitable business and then you have to draw the others.
Okay, good. Thank you.
And the final question we have time for today is from the line of Sean McLaughlin from HSBC. Please go ahead. Your line is now open.
Good morning. Thank you for including me. I just wanted to explore on the cough side, how much will you need to increase your fixed cost base by in order to meet your 2018 guidance midpoint?
No. Sean, as as I said previously, I mean, we we're trying to control or we are in good control over the fixed capacity costs. And, obviously, the intention is to be, stable and, but we also have to adjust the fixed capacity of the dependent on what we can deliver in terms of revenue because that would obviously be a measurement of the activity level of the company. So we've given you the range of 10 to 11 and the fixed capacity costs will also be mitigated based on where in that range we can end up because that would be a consequence for us delivering the EBIT guidance as well.
I see. And and do you see any need for restructuring within your current scenario planning?
I mean, we haven't planned for any restructuring, but obviously, we are cautious when it comes to spend, and we have been. So also, I mean, the fixed capacity cost is something we will continue to mitigate and we have also had a certain portion of outsourcing previously. And we also have the shared service where we put more activity in that slow cost base.
Thank you. And then finally, just a quick question on the U. S. I mean, what are your customers saying post tax reform, can we expect the U. S.
Market to return to the kind of market levels we were expecting pre tax reforms?
Yeah. I think, overall, of course, after the the bit of scary situation we had towards the end of last year with the different proposal and the different possible impact of wind. I must say I'm really pleased to say that within the tax reform that the PTC remains. I, I think, as I also said before, I'm I'm positive. Continue to be positive about the US.
It will be the contingencies be the 2nd biggest market in the world. And I think that I mean, the latest discussion has more been around, will the lower tax rate than impact the tax equity player and what could that do? And And I mean, the the the feedback I get from the US market is that we we expect to carry tax equity players to continue to be active in the U. S. Market.
Thank you. Okay. That was the last call. And Sorry. It was a long one, but it, of course, is this time of the year where we also do the spread the update.
So thank you for your interest. Thank you for calling in, and I'm sure I will see at least the the majority of you, during the next couple of days. Thank you.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.