Good morning, everyone, and thank you for calling in. Welcome to this earnings call on the full year 2017. Let me start with the usual disclaimers slide and then go straight into the key highlights. Revenue, very close to EUR 10 billion, EBIT of 12.4%, a free cash flow of EUR 1.2 billion, and investments of EUR 407. All parameters within the guidance was met. A very strong performance in the service business, 16% growth year-over-year, and an EBIT margin of 20% for the year. Highest ever order intake on 11.2 gigawatts across 33 markets. Again, really leveraging our global reach, and that's a 6% increase compared to 2016. Leading to an all-time high combined order backlog of close to EUR 21 billion.
Safety is a key issue for Vestas, and it was very good to see that we again improved our safety performance on the target we have with 23%. A dividend payment of 9.23 DKK per share, very close to the maximum payout ratio that we have. Overall, a strong balance sheet and a net cash position of EUR 3.4 billion, allowing us to do another share buyback program of EUR 200 million. This is also the time of the year where we do our yearly strategic update and both looking at how we have executed on and how we look at it going forward. Again, we are firmly on track and strengthen our leadership position in this transitional market. I will come back to that bit later on.
As usual, I will start talking about orders and markets, Marika will come to the financials, I will come back on the strategy and outlook. Starting with the Q4 order intake at 3.8 gigawatts and an average selling price of EUR 0.74 million per megawatt in the quarter. Orders declined 688 megawatts year-over-year, but that, of course, was expected since we, in 2016 Q4, had a large intake of PTC orders. Encouraging to see that we also in Q4 of 2017 had 264 megawatts of PTC components order that then qualify for projects in 2021. Otherwise, U.S., Sweden, India, and Canada were the main contributors on the order intake in Q4. Looking at the ASP and the sequential decline, I would say that there are two main factors and one minor factor.
As we have talked about before, we continue to see a very competitive market also in Q4, leading to price pressure. Second, we had a mixed effect, both in relation to turbine models, so the relation between two megawatts and four megawatts, and on the amount of power modes that was sold in the quarter. The minor factor is an effect of EUR 0.01. Going a bit more into the detail on 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, and U.S. also solid, even if a slight decrease. In the quarter, down 21%, very much due to the PTC impact. In EMEA, we saw a decline of 13% for the year and 9% in the quarter.
We continued to take orders 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 is primarily Germany and France that contribute to the decline of 9%. Asia Pacific, very solid improvement of 64% year-over-year and a decline of 14% in the quarter. 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 U.S. delivery. Starting with Americas, a 20% decline for the full year, 26% in Q4. Very much due to the U.S. and then compensated by growth in Brazil and Canada. EMEA, stable.
Plus 2% for the full year and 7% up in the quarter. Germany, U.K. were the main contributor for, sorry, the full year, and we also saw a good increase in Denmark in Q4. Asia Pacific full year up 3% and the quarterly increase 36%. Again, China, Mongolia, main contributors, and for Q4, also India and Australia. We took orders in 33 countries during last year. Again, a good benefit of our unique global reach, and we actually also added two new markets, taking the total up to 77, I think. Leading then to a record high order backlog of close to EUR 21 billion. The combined order backlog increased to EUR 1.67 billion year-over-year, despite then a negative FX impact of approximately EUR 700 million.
Looking at it sequentially then, we saw an increase of EUR 0.1 billion in the turbine business to EUR 8.8 billion, and an increase sequentially of EUR 1 billion for the service business to EUR 12.1 billion. We continue to see positive development in the joint venture that we have together with MHI for the offshore business. The company announced two large preferred supplier agreements in the U.K., taking the total of conditional and preferred supplier agreements to 2.5 gigawatts on top of the firm announced orders of 2.7 gigawatts. Last year, the joint venture also completed the first V164, so the big turbine project. The same turbine was then awarded Turbine of the Year. We have also, in line with the agreement, the joint venture agreement, appointed a new management team that will be effective from April this year. With that, I leave over to Marika for the financials.
Thank you, Anders. 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%. We, despite the lower activity level, have managed to deliver yet another solid year for Vestas, and we are well within the guided figures on the P&L side. Should also point out here that the result from the joint venture is a negative EUR 40 million, but still being negative, it is a 60% improvement from 2016. The income statement for Q4 is a reflection of the same parameters. You see a lower revenue as a consequence of lower activity in the quarter. The EBIT is down.
You can see SG&A costs going up by 17%. I will come back to the factors here on the SG&A side. That still is well under control. In the quarter, we managed to deliver 12.3% in EBIT margin. Here you see a positive impact from the joint venture of EUR 10 million, because we have a timing difference of the (CUR), but a positive here in Q4 of EUR 17. The SG&A cost is still well under control, despite an increase in percentage and also absolute numbers compared to last year, same quarter. Again, still 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 se. All in all, a satisfactory development also on the SG&A.
Service, we continue to deliver a strong performance on the service side. I think even more importantly is that we continue to deliver on the strategy that we have put forward on the service business. 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 two acquisitions in these numbers. Then we have an EBIT number of 20.1%. Again, very solid performance in the service business. We had a very strong Q4 of 2017, and that is also reflected 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.
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 EUR 3.3 billion, so very high. The ROIC looks extremely strange, and it actually becomes negative due to invested capital being negative. I will not go into more detail on the math and how we calculate the ROIC. I think you see that we have a very strong balance sheet and the solvency ratio is 28.6%, which I will also come back to 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 makes 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. Here the payables are clearly a reflection of the high activity level, and that is offset by higher inventory. There we have also said earlier that we will utilize the balance sheet when we see fit, but still within the controls that we have put in place. Net working capital change over the last three months is, you see a positive development, 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 we still consume less than what we provide for, although slightly up from Q3 in terms of consumption. You see that loss production factor trailing below 2% here. 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. Here you clearly see that we have a solid cash flow from operating activities. That leaves us with a free cash flow of EUR 1.2 billion 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 dividend that was based on the 2016 results. Total investments is also in line with the expectations, and I will use the term control also on this one. We deliver a net value of EUR 407 million, and the negative EUR 91 million is the cash we received for the facilities in Aarhus. Net value is EUR 407 million, and underlying cash flow from investments is in line with 2016.
Capital structure, well within the thresholds on the net debt to EBITDA. We are even further in negative territory, obviously driven by the high cash balance that we provide. The solvency ratio is 28.6%, slightly below the 30%-35% that we have put forward. We will revise the solvency target to a minimum 25% from the range that we have provided earlier to have the flexibility to perform share buybacks if we so see fit. The capital allocation, we return to the shareholders close to EUR 1 billion. For 2017, the board recommends to the AGM to pay out a dividend of DKK 9.23 per share. We are again at the higher territory of the 25%-30% of net profit.
Combined with the share buyback of EUR 694 million, the total distribution to shareholders during 2017 financial year will amount to close to EUR 1 billion, as you see on the headline here. By that, Anders will talk more about this.
Thank you, Marika. Moving over to the strategy and looking at overall growth prospects, which is forecasted to be very favorable for renewables. This is a slide from International Energy Agency that looks at the forecast in electricity generation from 2016 to 2040. Of course, what we can say here is that renewable will have the majority of the growth, coal will decline, and that is where you see the biggest part of that is on the decline. Also encouraging, of course, for us to see is that wind will take a major share of the forecasted growth for renewable. We actually saw already last year that wind is starting to be a mature technology in the overall energy mix, accounting for approximately 20% of all new build capacity, and still, from a penetration point of view, then only represent 7%.
The market continue to be two fundamental different drivers in OECD countries. It is about replacement, so decommissioning conventional capacity. What drives this decommission is either financial end of life or CO2 reduction targets or, of course, a combination of the two. 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 levelized cost of energy for wind, and we see these are the numbers from Bloomberg New Energy Finance. We see now that wind is very competitive against other technologies, both on the renewable side and on the more conventional side when it comes to levelized cost of energy.
We expect this development to continue, giving some historical numbers, we have, of course, seen a more than 80% decrease in levelized cost of energy in the last 20 years and close to a 20% decrease in the last three years. Looking at the market going forward, these are numbers from MAKE Consulting that we view as relevant numbers for our planning assumptions. We see an onshore market with a CAGR around 3%-5%. 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. That we do with providing our customers with the lowest cost energy solution. Looking at the service market, we see forecasted high growth.
These are MAKE numbers, a CAGR of 8%-9%, which drives the cost installed base and the continued penetration drives this market, but also new services. Our strategic priorities here remains to more than 50% growth in revenue towards 2020 compared to 2016, and again, to generate best-in-class margin. Looking at the offshore market, where, of course, we participate through the joint venture that we have, we see a high growth CAGR of 15%-20%. Again, MAKE's numbers. A little bit phased, you can see, a modest growth until 2020. Then when markets outside Northern Europe is forecasted to pick up, we see a substantial growth. The priorities for MHI Vestas then is to claim a leading position, and again, with a competitive offering on lowest cost of energy. Our strategy remains, and we are committed to our strategy.
The definition of our definition to be a global leader in sustainable energy also remains in the financial definition of leaders in revenue and best-in-class margins. We have also maintained our strategic objectives, 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. We are executing well overall on the strategy. On the Power Solutions side, we saw a 6% increase in order intake. Of course, in a market that is expected to have declined last year, that will lead to market share gains. Best-in-class margins, very important for us, as you know. We delivered 12.4% 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 EUR 12 billion. We are well on track on achieving our goal of 50% revenue growth by 2020. On the levelized cost of energy solution, which is, of course, to a large extent on the competitiveness of our product program, we have two very solid platforms for onshore in the three MW that is now upgraded to a four MW platform offering double-digit AEP increases. We've also done then during last year, the fifth major upgrade on the two MW platform, increasing AEP 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's in today's market, more true than ever.
Of course, we executed well on a free cash flow of EUR 1.2 billion and also our control of our fixed costs. Last year, we also talked about building capabilities for the future markets, and we started that well during last year. The first utility-scale hybrid project was secured with the energy storage and PV. We're also looking into the storage development, and we have signed a development agreement with Northvolt to look specifically more in depth on the battery technology. We very recently then did the acquisition of Utopus Insights that will accelerate our digital solution offering, especially on the service side. We continue to develop our co-development capabilities.
To summarize our position and also taking account our stake in the joint venture, we summarize the year with a revenue on EUR 10.5 billion, clearly taking market share, an EBIT of EUR 1.1 billion, where we deliver best-in-class margin. That also, of course, enable us to invest more in R&D than anyone else in the industry and maintain a flexible asset-light manufacturing footprint. Combined backlog then at EUR 22.8 billion, 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 differentiators that we have with [inaudible ] about global reach, about technology and service leadership, and about scale. If we look at the onshore scale, then we have now gone up to 90 gigawatts across 77 countries and with data insight from 38,000 wind turbines.
We have then also updated our long-term ambition. When defining our long-term ambition, we forecast 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. This transition leads to a highly competitive market, as we have seen, that we believe will drive further consolidation. 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. With that in mind, we have also then updated our long-term ambition. Revenue to be the market leader and grow. EBIT margin of at least 10%. Free cash flow, positive each year. ROIC, double digits over the cycle.
As Marika said on the capital structure, we kept the net debt to EBITDA ratio, we have adjusted the solvency ratio to 25%, and the distribution policy remains at 25%-30%. With that, I move into the more shorter-term outlook and the outlook that we see for 2018, where we see revenue between EUR 10 billion and EUR 11 billion, an EBIT margin of 9%-11%, total investment approximately EUR 500 million, a free cash flow of minimum EUR 400 million. We expect the service business, as before, to continue to grow with stable margins. You should also note that this outlook is based on today's foreign exchange rate. With that, we move over to Q&A.
Thank you. Ladies and gentlemen, if you would like to register for a question, please press 01 on your telephone keypad now. If you want to withdraw that question again, you can do so by pressing 02 to cancel. Once again, that's 01 on your telephone keypad to register for a question. We have our first question from the line of Christian Johansen from DNB. Please go ahead. Your line is now open.
Thank you. First question is about your updated long-term financial targets. What is the time horizon for these, and then specifically your new margin target? Should we read that as you aim for at least 10% EBIT margin in 2019?
Yeah. Of course, it's a long-term to start with, a long-term ambition, we haven't set the time on it. We've described a market scenario that we forecast long-term. Of course, it can depend. It could be different timing when we see that kind of market scenario. It's, of course, within our strategic time horizon, which we always work with a three to five-year time horizon. I think it's clear to say that it's a market transition that we forecast in that scenario.
You say within the next three to five years, you should have an EBIT margin of at least 10%?
What I'm saying is that within the scenario planning process, which is three to five years, we envision this market scenario that I described. In that market scenario, our ambition is to have an EBIT margin of at least 10%.
Okay. Thanks. 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?
Yeah, I can't, of course, comment on our competitor's statement. If we look at Q4 on 0.74, as I said, we definitely see that it was a competitive market also in Q4 with price erosion. Of course, we also have the mix effect that I said. For Q4, it's very much in line with what I said, still a competitive market. 0.74 have two major factors and one minor, as I said, sequentially compared to Q3. When it comes to longer term, and of course, 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, you do see further price erosion in Q4 versus Q3?
Yeah, ASP is going down, of course, as I said, in Q4 compared to Q3. That has a price erosion effect. It has a mix effect on the turbine side, it has a small FX impact. We don't guide on what kind of prices we see going forward from Q4. Of course, our assumption on prices and ASP is reflected in our guidance for 2018.
Excellent. Thank you very much.
I think, what to look for, I think I would say come back to what we talked about in the last quarter. We see electricity prices coming down in the auction systems, I think we see definitely in some markets they continue to go down. We see in other markets that they start to come down a little bit slower. Of course, looking at 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. When we get back to a more normal development in ASP is, of course, when we continue to see a declining ASP based on technologies, which is what we have been used to in the past as well in this industry. That is one key indicator, of course. We have a competitive environment as usual.
The next question comes from the line of David Buss from Barclays. Please go ahead. Your line is now open.
Good morning, Anders, Marika, and Patrik. 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 one. Thank you.
Yeah. No, we haven't changed our view there. Our strategy is built on organic growth. Of course, as we said before, we could see more bolt-on type of acquisition as we've done in the service space and now in the digital space. Otherwise, our strategy remains on organic growth. We feel we have a very solid position, and that we have a very complete both market presence and product presence.
Okay. Thank you. That's clear. Second question on your targets. Clearly, I think everybody will be happy to see you commit to a 10% long-term EBIT margin target. I 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, not committing to a very strong FCF target, at least implicitly, you could put one and 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 double-digit range, whatever that might be between 10% and 99%. Still, it would imply that your capital base goes up by quite a lot. Is that the right interpretation here, or how do we square that circle?
No, I understand where you're coming from. Obviously, as the net invested capital is negative and we're coming from 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 looking at the margin levels that Anders has provided, so still very solid on that point of view. Positive cash flow. If we are not precise enough, it is obviously very hard to be precise on the ROIC or the free cash flow. 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.
That's also why we also in 2017 are delivering a very solid net working capital. What I've said previously is obviously that from time to time, it's more efficient to use the balance sheet in terms of building up inventory. That is also something with the very strong balance sheet that we have, that we actually have the possibility and capability of doing. That will definitely continue also going forward.
Okay. Yeah, I understand that. I guess if I want to put it bluntly, I don't see the point of presenting two sort of metrics in the long-term ambition framework that are so difficult to interpret, given where the starting point is. I guess we'll discuss this some other 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. I obviously understand where you're coming from also on this one, David. I think as Anders has described, it's obviously not only price that defines our EBIT target or the revenue target. We have a good order backlog, both on the WTG side as well as the service side. Obviously, service-based plays a very important role in our forecasting of what we can deliver. Then obviously we have a big element of the cost out. We have a big element of the still controlled SG&A. The Power Rating, as Anders was alluding to earlier, it's obviously you mitigate part of the very competitive market with continuing to develop very good technology that offsets part of that. All those elements continue.
Our best estimate is that we have a solid ground to say that we, over the cycle, will develop a minimum 10%. Obviously, we have not indicated 2019, we just guided for 2018.
All right. Thank you very much.
The next question comes to the line of Casper Blom 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 EUR 0.74, it's down 22% from the EUR 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 EUR 0.01. Can you sort of put a little bit of magnitude on those different elements?
Yeah. What I referred to was the sequential then between 0.8 and 0.74. If I don't remembering correctly, I think that 0.95 was not really representative of that year. We had a bit of a spike there as well. I think you have to look at this much more from a trend point of view, as we talked about before as well. My comments that I made was comparing sequentially then Q3 to Q4.
Okay. Fair enough. A question regarding your cash flow. Marika, you mentioned that your payables are helping the cash flow here in quarter four. 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 higher portion of the total price as a prepayment?
No, I would say we have been very consistent on that, Casper. It's also fair to say that we are very glad that we've been very consistent on the payment terms. They remain as they have been previously. That is obviously one enabler for us also from a certainty point of view. As I said earlier, the payables is just a reflection of the very high activity level overall in the company, and pretty much the same behavior as previously. We also have negotiated good payment terms, but that has been done previously and part of the program, as I mentioned.
Okay. Just one final question also regarding the 10% long-term EBIT ambition. You say it's in the three to five-year perspective. Should we read it as an average that over those three to five 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?
You should view it exactly as I said. It's our long-term financial ambition that we have adjusted, that is what it is. The reason why we have it there is, generally speaking, come back to what I said before, that 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. That puts some pressure on us and our peers. The good side of that coin is, of course, as I said, that we see that the competitiveness of wind is then increasing. As I said, the electricity prices are on merchant levels in some markets or many markets already today.
If we look at that longer term, without setting a date on the longer term, more describing the market, I think that, of course, will provide a floor for electricity prices generated by wind. When we are at merchant levels in the majority of the market and in some markets, even at the running cost of fossil fuel, of course that should provide a natural floor for electricity prices for wind. On top of that, we have a good technical visibility. We have solid plans on what we want to continue the technical development that we have seen during the last couple of years. 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.
As usual, of course, we work with all the levers that we control, that's our focus on, we have to do assumptions based on what we see in the market.
Thanks. That's all good. You don't want to sort of commit to whether or not the 10% is a floor for each year or whether it's an average for the period?
It's a long-term financial target, and it's not a floor per year or divided into specific years.
Okay. Thanks a lot.
The next question comes from the line of Akash Gupta from J.P. Morgan. Please go ahead. Your line is now open.
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 what 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 that has been a disappointment in 2017. 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 just large orders since the tax reforms that has been taken place last quarter.
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 start with the guidance of EUR 9 billion-EUR 11 billion, obviously with the strong order backlog that we have both on the service business as well as the (V2G business), we have a good visibility over the revenue for 2018, and that's also why we have provided the guidance of EUR 9 billion-EUR 11 billion. Obviously, you will have some in-for-out orders also in 2018. Certainly, we have a good visibility with a strong order backlog that we have in place. You always do simulations, as we said previously, on headwinds or tailwinds that we could have during any given year.
A bit on the U.S., I think there were several questions on that. If I start overall on the order side, as I said, we have announced 264 megawatts, I think it was, for PTC orders for then qualification rollout 2021. I must say I'm very confident with our position overall in the U.S., also considering the PTC order that we announced last year. Actually also, if I look at current performance in the market, looking at both the AWEA in the U.S. on delivery during last year. According to Bloomberg, we maintain our leading position also when it comes to actual delivery.
Orders will by nature always be a bit lumpy, but if I look at the order intake we did last year, if I look at the additional PTC components, and if I look at our position in the market, I must say, overall, I'm very pleased with our position and our performance in the U.S. A bit to your question then on seasonality of the U.S., I think it's definitely a fair point. Last 2017 Q1, we, of course, had a very high activity level of delivering those PTC components, which we will not see a repeat on this Q1. From that point of view, we say that this year will pan out more like a normal distribution over the quarters compared to last year where we had a very high Q1 due to the PTC component.
Just to follow up on this MHI Vestas offshore joint venture. If I remember correctly, you were guiding for operational breakeven in 2018. Is that still the case? Can you update us, what should we expect as a joint venture contribution from this year? Because all I try to understand is that, can you grow your earnings together with lower share count because you're launching a buyback now and maybe there will be further buyback down the year? I'm trying to figure out whether you can grow earnings this year if you have a good contribution from the joint venture.
Yeah, I hear you. 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 Almer from Nordea. Please go ahead. Your line is now open.
Thank you. 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 first auctions or couple of auctions. Have you seen this in some of the markets who recently implemented an auction system? That would be the first one.
Yeah. We've seen, of course, that a typical trend has been that the initial auction has taken a very large decline in prices. 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 decline. After that, we have typically seen a continued decline, but at a much lower rate than the initial auction. That's as far as we have seen in the market. I think the only market so far that actually have seen an increase on auction prices is probably, to my recollection, is probably Brazil. There is a lot of other specialties in the Brazilian market. I think we shouldn't read that into a global trend, so to speak.
Definitely we say that the steepness of decline is less, so to speak, when you see more auctions coming online. Looking forward, of course, I think it's for us as well, definitely a key indicator of judging the market, and a leading indicator of judging the market, in combination with additional volumes. There, I think we see some positive signs still to be confirmed. One such an example is, of course, the EU that is discussing now to increase the 27% renewable energy targets by 2030. 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 the new level of pricing for renewable, it's actually for the same amount of money, so to speak, possible to increase the target.
I think that is a healthy sign that a more competitive price actually drives higher volumes in the longer run. Of course, we need to see that coming in. We need to see it being confirmed, and we need to see those volumes translated to auctions. That would, of course, increase the market for renewable in that timeframe in Europe with about 80 gigawatts or something, approximately.
Okay, thanks. My second question goes to your 2018 guidance, this 9%-11% EBIT margin, which as we've discussed before, is below the long-term target. What scenario will take it to the lower end of the range and same question goes to the upper end of the range?
Well, I would say what we have said earlier. I mean, obviously, we have a good visibility as we have the big order backlog that we have both for the service and WTG business. You will have operational headwinds, or if the inflows doesn't materialize as we expect them to materialize. 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, the inflows. Those two are the major elements for being either or.
How is the currency trend impacting 2018?
What we have now provided for is with the current exchange rate, obviously that is a weaker dollar. From a translation point of view, a weaker dollar is not very favorable all in all for our business. We have given the guidance based on the current exchange rate.
Sure. Just trying to figure out the year-over-year impact. How much has the currencies diluted the EBIT margin or expected to dilute the EBIT margin this year?
Yeah. That's also considered in the guidance that we are providing. 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, just a final question. This order intake megawatt ratio of 0.74, is that the level we should expect for 2018 too?
Yeah. Again, we don't forecast on the ASP. As Marika said, the margin guidance for 2018, of course, reflects the ASP in the backlog and reflects the ASP that we forecast for the in-for-out 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 understand the sequential explanation you are giving on this, that the 0.01 is FX and the price and mix more or less shares the rest. Could you give some flavor on the mix? Is it related to any particular regions, 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 trend and then maybe something that can vary a bit between the quarter depending on product. If you look at Q3 on the order side, a bit more than 60% or around 60% was on the 4 MW platform. If you then look at it in Q4, about 70% of the order were on the 4 MW platform. When you then have a shift on that you take more orders of the total order share, so to speak, on the 4 MWs than the 2 MWs, then of course you get more MWs, but not necessarily in the same extent the higher price. That trend, of course, we've seen for some time, that we see a shift from the 2 MW platform to the 3 MW platform, generically speaking.
Of course, that's also geography. If you have a quarter where the order intake is extremely strong in the geography where we primarily sell the 2 MW in a quarter, that long-term trend can reverse in a quarter, so to speak. Generally speaking, of course, for some time, we've seen a trend that the 3 MW takes over volume from, or that is now 4 MW that takes over volume from the 2 MW platform. That's more of a long-term trend that again, of course, depending on geography, can vary a bit between the quarter. The other part is a bit more technical, power modes. For most of our turbines, we have power modes that fit in certain markets you can use them, and in certain markets you can't really use them, depending on the wind projects.
The power mode is typically, for example, that we have a 2 MW that you can run at 2.2 as a power mode. We have the same on the 3 and we have the same on the 4. Of course, if you then in a quarter compared to the sequential quarter have a higher order intake on power modes compared to non-power modes, you also have an impact. That I would say is a bit more lumpy. It depends on when we release those power mode updates on the product when we can take in orders.
Very helpful. Thanks a lot. On the service business and EBIT margin in Q4 of 23%. Seems extremely strong. What explains this? I would maybe have expected that due to the price pressure we are seeing on ASP and on the whole value chain here, also could expect some pressure on service. Are there any 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, even a quarter ago?
I would say that the service business is also very competitive. We are in a good position, with the different offerings we have, obviously creates a very stable ground for us in terms of EBIT. The volume is obviously also important when it comes to the EBIT. I would say that, yes, it is competitive. Because the more population you have, obviously that creates opportunities for cost out in the service business. The levels we are at now we think is still very stable. Obviously we continue to optimize the service business, not the least from a portion or % of the total revenue to continue to being a stable company.
Are there also any mix effects here? Clients stepping up in the service products?
I would say you see a mix of that. I think it's with the different offerings we can provide. Obviously, with any financial investors, it creates a lot of stability as we give certain guarantees for output as well. We have very high quality on the product. It seems like the tenor of the new contracts are increasing.
Okay, then a question on cost out and the long-term targets. What kind of assumption do you make here? Of course, when you look at the way the ASP has developed, the 20% price reduction over the past one year and a half year, has that led you to be more aggressive on the cost out? What are your assumptions here for the long-term targets? Are you just assuming cost out to more or less be on par with what we've seen historically per megawatt?
The cost out is and has been a very important element for us. I think that what Anders said before is that we have prepared ourselves for the last few years for the market we're in, being subsidy-free, being very competitive. It's all about the cost. It's also about having a very efficient product portfolio. That is the other enabler, is to basically provide more output with fewer turbines. We have a very high focus. Remember that we invest a lot on the technology side. That is obviously also a mitigating factor. I think it was actually you, Dan, if you look at the ASP over the last few years, it has been trending down. It's clear that's part of the levelized cost of energy. That's part of the market conditions that has been there.
Now we're in a transition with a new market with the auction and totally subsidy-free. We have been working in the same pattern for the last few years, and cost is obviously a very important element.
Just to understand it, you're not more ambitious now on cost out than you've been in the past. You just continue along the path, basically.
I think we have been ambitious and we have been aggressive on cost out. It's all about profitability, obviously that is a very important element.
Yes. Okay. Just a final question here on the JV turning profitable here in Q4. Is that just one of due to some timing of some orders? Should we expect, because this catch up a bit earlier than what I believe you have previously communicated on when we should see the JV profit-wise.
Yeah, absolutely. It is a timing. When we sell the 3 megawatt platform, this is the Rampion project. Now in Q4, the joint venture have PO'd what we provided them with before. We have a negative impact in the joint venture, so it is only a timing element. What we have said earlier in terms of EBITDA break even of 2018 remain.
Very helpful. Thanks a lot.
The next question comes from the line of Marcus Bellander from Carnegie. Please go ahead. Your line is now open.
Thank you. Just one question from 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?
We have given you the best assumptions that we could have, that's the 9%-11%, obviously we're striving for the higher end of the guidance. Nothing has changed from that perspective.
Thank you.
The next question comes from the line of Alok Katre from Societe Generale. Please go ahead. Your line is now open.
Hi, Alok Katre. Thanks for taking my questions. My first one, I have a few as well, is, I think if I heard right, I think Anders wasn't committing towards a true 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%. I'm just wondering, whom should we be looking at between the both of you from this perspective? If you say it's a three-to-five-year target, is a minimum of 10%, you've done 12% in the last three years. If I take the rolling three-to-five-year sort of period, does it mean you should end up somewhere closer to 8% over the next three 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. That's question number one, and I'll follow up with the others.
Okay. I'm not sure I 100% understand where you're coming from, but I'll try my best. What I said is, obviously, what Anders have or Vestas have provided as a medium-term guidance is the 10%, a 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 exact in timing of the minimum 10%. I don't think you should look at the average 12-month rolling EBIT either because the conditions in the market, it's very hard to extrapolate. 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 get there. I think now it's probably that I say a three to five-year target, and Anders is talking about the long-term that you could potentially see discrepancy.
I don't know if you want to elaborate more, Anders.
I think I can just go back to what I said. I think, hopefully, it was fairly clear that on the minimum 10% target, that is a market scenario that we look at within our strategy period. Our strategy period is unchanged as before, three to five years. Of course, it depends on that market scenario, that we see that as a long-term target after the transitional phase. I can't really put a date on that. In between then, I think we have, of course, as we talked about, we guide for 2018, we will come back at the time for 2019. If the question then is can we at any time in between there go below our minimum 10%? Yes, we can because, of course, in 2018, we have a low scenario of 9%. That is of course then possible.
Sure. Thanks. Does this include in the context of slide 26, does the five-year period include an upcycle in the U.S. and a decline post 2020? Your 10% target that you sort of said, if it's on a three to five-year business cycle basis, would it be fair to say it includes a period of decline in 2021 onwards as well?
I think what I said on the MAKE numbers is that this provides a good basis for our forecast and our strategy work. I can't really say that if between the different years that this is accurate. That I can't do. If I look at the planning cycle, if I look at our strategy scenarios, and we have many of them, like, of course, you have to have when you look at three to five years, then I think this is a good estimate of the overall market in this period and the growth rate that we see. Without going into what I believe, if it's right between individual years, so to speak. Remember that the forecast, I think for 2016 or the numbers for 2016 was 53 gigawatts and then 2017, 46.
I think also in that kind of decline that was forecasted there or was actual here, we can do a fairly good performance.
Okay, great. My last question on this one is in terms of your longer-term strategy, you mentioned in your annual report that you targeted leadership position in both onshore and even in offshore segment. Clearly, we are seeing a bit more consolidation. I guess you remain, let's say, committed to not, let's say, doing a larger deal, meaning the consolidation will happen around you rather than with you being involved. In that sense, given this consolidation, do we then expect Vestas to become a bit more aggressive if competitors force your hand in terms of the pricing and bidding? How does that square with the 10% margin? Meaning I'm just trying to understand what sort of competitive dynamics have you included in this target, worsening but improving?
You're absolutely right. I think from Vestas point of view, if I take that first, which of course is then 100% of the onshore business and 100% of the onshore service business. We have been very clear that our That's our long-term objective, and our vision is to be the market leader in revenue, and that absolutely remains. I think for the offshore joint venture to be clear, and I think that is also on the slide, they talk about a leader and not necessarily the leader in offshore. I think that is a distinction there, which from an owner point of view, from Vestas point of view, I think is an absolute fine ambition for the joint venture to have. That, of course, has to be really clear on that part then.
When it comes to then balancing volumes with margins over this time, our strategy has always been about profitable growth and that remains. I think that's actually also evident in our numbers. If you compare our numbers to industry average numbers, I think it is clear that that has been our focus and will continue to be our focus going forward. That is, of course, a constant thing that you have to monitor, where you see that the market is going. As I said, I think already in the last call, a stable volume that we have, I think also gives a lot of benefits on the cost side and the cost- out side. There is definitely a continued interest for us to have the right balance. We want to drive a profitable business.
For the cost point of view, it is also important to keep a fairly stable volume. 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. Yeah, two questions, please. The first one is just coming back to the U.S. market. Obviously, we saw other players taking a good chunk of market orders in Q4. Now, I appreciate you point to sort of lumpiness in orders 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. That was the first question. The second one was around, you obviously commented that auction pricing 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 citizen 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.
Yeah. No, if I start with U.S., I think the overall answer is that, we talked about the auctions and I think as I said before, U.S. with very large tenders and a fairly long-term horizon in the current PTC cycle, has exactly the same characteristic as an auction market. Even if it's not by definition an auction, I think the characteristic is very much the same as an auction market. 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 few regional differences, with the exception of China, but that's very much of a scope difference as well. Apart from China, I would say that we see more and more of a global picture when it comes to pricing.
As I said, from a Vestas point of view, again, I can't talk for the competition. We are very happy with our position 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. Also if I look at the potential orders that we have, because they are potential that we have secured with the PTC, I'm happy with our position. I can't really comment on what the competition could do or not do short term. I think your main question is, of course, extremely interesting, as you say. Everything else equal, of course, the citizen wind park has been negative for the industry in the sense that, from the pure sense that they didn't need permitting.
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. The negative part with the citizen wind park has been volume push out in time, so to speak. Therefore, of course, also, theoretically speaking, more opportunity to use further technology in those types of bid. I think the answer to your question on what will happen now, because the latest round was on, I was about to say normal, but with permitting, that I think we will know actually within a week or so. I think the auction was last week, of course, we participated together with customers. I think the result of that, I would suspect, will come out within a week or so.
Then we will see if this new round of auctions have actually had an impact on the price.
That's great. Thank you.
The next question comes to the line of Gurpreet Gujral from Macquarie. Please go ahead. Your line is now open.
Hi, guys. Just 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. Are you saying competitive pressure and mix impacts make up the difference on an equal fashion, i.e. two and a half each? Is it more sort of favored to competitive pressure, say, on a three and two basis?
No, I would say roughly speaking, half and half. You get into very complicated definitions because, of course, they go into each other to some extent. Take what I talked about the power mode, as an example. If we sell more of a power mode, let's say from two to 2.2, power mode, of course, has the advantage that it's a limited cost increase compared to a four-megawatt turbine is more expensive than a two-megawatt turbine. If we then can't keep, so to speak, in our pocket that power mode upgrade, is that then a price pressure or is it something else? You have a certain overlap, of course, between these depending on the definition. Just as an example. I think roughly speaking, they are about of equal importance, but you get into very difficult definitions.
Yeah. Okay. Understood. Okay, the second question is on the cost out statements that you guys made. Can you perhaps give us some examples of where you may get some easy wins or early wins here? Is this a case of establishing new suppliers from new regions, perhaps from Asia? Are you seeing new innovations coming from your supply chain? 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?
If we start with the last one, which is the commodity pricing, obviously, we have a fair share of steel in our products, that is probably the commodity that we are most exposed to. Here, we are mitigating with indexation. We pre-buy, as we have said previously. Obviously, we're not immune, but when it comes to cost out activities, it's a good mix of what you mentioned. Part of it is technology development that gives us an opportunity, but it's also going from global local to local local that gives us an opportunity to do further cost out. Basically, the program that has been running over the years, we're further looking at activities. It's very well-defined. It's nothing random. We're tracking on a monthly basis how we are performing on the cost out targets.
I would say it's a rigorous process, and we are as aggressive as we have been in the past to identify further opportunities. It's a well-identified program, it's not a guess. It's really solid activities behind all the cost out elements.
Okay. Is there any part of the value chain that is giving you the best kind of a cost out? Is it the blade? Is there a part of a value chain that you can really focus on going forward?
I would say the cost out is obviously the low-hanging fruit that we had from the beginning. That also was volume-dependent. 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. Also going forward, you will see a lot of the cost out coming from design.
Okay. A final question on the acquisition over the weekend, perhaps some comments around the rationale. I know it's a relatively small acquisition, but can you give us some color as to what that business can provide you guys in terms of new innovation?
Yeah. I'll be happy to. Of course, we see it as a really good fit. Of course, as you say, from the size point of view, it's fairly small. It's a very R&D-focused company. That has a really good product offering already today in the digital energy management space, very much focused on renewable, but of course, lacked the sales channel for those product packages that exist today, which, of course, we can 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 the efficiency gains in the forecasting part that we can do on the service side. 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 150, 200 sensors per turbine, 38,000 turbines under service, sending data 24/7. We've done an excellent job on the digitalization on that data when it comes to designing new turbines. We've done a really good job on that data analysis when it comes to the performance of the existing fleet, the preventive maintenance in the service packages, the guarantees that we can give. We also see that we can do a lot more on the increased performance side. Then we need more data analytics type of products and software, and that is exactly where this company fits in.
Okay. Thank you.
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 if you could give us some understanding of looking at 2017, what the turbine mix was on deliveries, please, between two, three, and four megawatt.
We will give that task to Patrik as IR 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. 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. Also on the opportunity to spread production across 2018 as you did in 2017, where you gave a greater or similar opportunity in that regard.
Yeah. The inventory increase that we have during 2017 has been deliberate. We have used the balance sheet when we saw an opportunity to increase the finished goods instead of investing in additional capacity when we see fit. That is also how we intend to use the inventory or the working capital possibility going forward. 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 2016 and delivered Q1 2017, you will obviously not see the same kind of activity level. Remember also end of 2017, we actually flushed out a bit of inventory because of the activity level. I would say this year being 2018, you will see a fairly normal distribution of the quarters.
That being said, the normal distribution is a lower activity at the beginning of the year and a higher activity level at the end of the year. We will use the inventory possibility if need be.
Okay. Just on realized ASP, 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. 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 the extent to which the backlog ASP becomes the delivery ASP.
Okay. Obviously you have a timing element between the order intake and the deliveries. That depends on how well, or if we continue to being as good as we have been on the cost out elements, also the part of the technology development that you have seen. Over time, we anticipate that it will balance out.
Okay. To be more specific, I think ASP in Q4 is around EUR 93 on delivery, it's about EUR 74 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. 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 it will stretch into 2019 before that happens?
That depends. It's hard to say the exact timing of it.
Okay. The last question, just on the offshore business, given you're building up your capability there, I was wondering if you could give any thoughts as to your ability to bring very different turbine cost into that market versus peers to help you lift that business off.
Yeah. I think that, overall, we actually have a very competitive offshore turbine. That, of course, is the basis for the joint venture with the V164. It started out as a eight megawatt, now been upgraded to 9.5 megawatts. The technology development in offshore, very similar to onshore. I would expect also in that segment, we will continue to see increases in ratings over time.
Okay. No, thank you for the answers.
The next question comes from the line of Pinaki Das from Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Yeah. Hi, good morning. A fairly long call, so I'm going to keep it short. Thank you so much for taking my questions. The first one is a very simple one. I think I missed it. Did you mention how much PTC component orders you had at the end of 2017 for the 80% bracket? That's my first question. 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. How would you react if any of the strategic players were to come and try and buy out one of the smaller turbine manufacturers in Europe? What would be your reaction to that? Thank you.
The first question was simple, 264 megawatts in 80% PTC component orders. The second question, I would say that, as I said also before, from a Vestas point of view, our strategy is based on organic growth. The reason for that is we have a very strong two megawatts platform with a large scale and good volumes. We have a very strong four megawatts platform also with a large scale and a good manufacturing footprint. From a consolidation point, from a Vestas point of view, we see limited gains on the product side. Also on the market side, we have a geographical coverage that 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 that's always the case.
It's very hard to see an acquisition that would complement the capabilities we have to the extent that it would justify the price. That's what we see in today's market. That's why we have an organic strategy and been pretty clear on that. If that will change for the future, who knows? That is what we see the situation today. Having said that, I think it's fairly natural that we see this consolidation happening in the market, and of course, we've seen it for some time now. I think that it's a fairly natural evolution of the market that that will continue. That is a forecast, not something based on known facts, 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.
Okay. Maybe I'll ask a follow-up question, something unrelated to this, just on ASPs. If you look at the market, you've got a 30 GW ex-China market. You guys are 1/3 of it at 10 GW-11 GW. If you take the other two bigger suppliers, you guys almost control 75%-80% of the market. I was just wondering, you're already at levels where wind is close to merchant power prices, if not cheaper. Why aren't the three big suppliers being more disciplined on ASP? You are kind of the market, and it seems like there's no need to go dramatically lower immediately on the cost of energy. It can happen over time, why not sort of push back a little bit on the ASP decline?
Yeah. Of course, I can only speak for Vestas, and I can't really speak for the competition. You have to ask them. I can only speak on behalf of Vestas, that as I said before, we are disciplined. We want to run a profitable business, you have to ask the others
Okay, great. Thank you.
The final question we have time for today is from the line of Sean McLoughlin from HSBC. Please go ahead. Your line's now open.
Good morning. Thank you for including me. I just wanted to explore on the cost side, how much will you need to increase your fixed cost base by in order to meet your 2018 guidance midpoint?
Sean, as I said previously, we're trying to control, or we are in good control over the fixed capacity costs. Obviously the intention is to be stable. We also have to adjust the fixed capacity cost depending on what we can deliver in terms of revenue, because that will obviously be a measurement of the activity level of the company. We've given you the range of 10 to 11, and the fixed capacity cost will also be mitigated based on where in that range we can end up, because that will be a consequence for us delivering the EBIT guidance as well.
I see. Do you see any need for restructuring within your current scenario planning?
We haven't planned for any restructuring. Obviously we are cautious when it comes to spend, and we have been so. 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, and that's low-cost base.
Thank you. Finally, just a quick question on the U.S. 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?
I think overall, of course, after 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 think, as I also said before, I'm positive, continue to be positive about the U.S. It will continue to be the second biggest market in the world. I think that the latest discussion has more been around will the lower tax rate then impact the tax equity player and what could that do? The feedback I get from the U.S. market is that we expect the current tax equity players to continue to be active in the U.S. market.
Thank you.
That was the last call, sorry it was a long one, it of course is this time of year where we also do the strategy update. Thank you for your interest. Thank you for calling in, I'm sure I will see at least the majority of you during the next couple of days. Thank you.
Thank you.
This now concludes the conference call. Thank you all for attending. You may now disconnect your lines.