So good morning, everyone. Thank you for your interest. Thank you for calling in. To this, full year 2016 and Q4 earnings call. As usual, it's, me and Mike are here and also part of the IR team.
Let me start with the usual disclaimer slide and then go straight into the key highlights of 2016. All in all, of course, a very solid execution leading to record high financial and operational results. And of course a year that I and the rest of the management team are extremely satisfied with. And looking at some of the highlights then. Full year guidance met on all parameters on revenue, EBIT, free cash flow.
And investments. Also very satisfied with the high order intake of 10.5 Gigawatts across 33 countries again a testament to our global reach. Also leading to the highest backlog ever for Vestas at 19.2 very high ROIC at 265 percent. Also, the safety performance continue to improve both year over year and compared to our internal targets. We recommend a dividend payment of 9 point 71 DKKKs, Danish Krones, per share.
A total of 2,200,000,000 and per share almost a 50% increase year over year. We have also initiated a share buyback of 1,000,000 based on the expected net proceeds from sales of the office building in OHS here in Denmark. So overall strategy firmly on track, good execution. And as normal, at this part of the year, we have also done a revision that an update you can say that we do over the strategy every year and I will come back to that as well. But let me start then with orders and markets and then hand over to Maker for the financials.
So, looking at Q4, strong order intake at 4.5 gigawatts, up 40% year over year for the quarter. Average selling prices remain stable. We saw an uptick to 0.95 in the quarter very much impact by scope mix and to some extent FX. Looking at the order increase, the main contributor actually about 70% to the order increases for US Australia, Germany and France. All in all, of course, a very good development and especially in the US that we would come back to.
As I said, we feel that the prices remains fairly stable. We saw an uptick in the quarter. It is and continue to be a competitive market. We definitely have to to fight for every order. But, good to see a stable development.
Should remember, as usual, that the price per megawatt depends on a number of different factors, turbine type scope and of course in the end of the day, the uniqueness of the offering. Looking then at at orders for the full year at 10.5 gigawatts, also good to see that we saw a growth from all our regions. Starting with Americas up 5% for the full year and 84 in the quarter. Driven very much by U. S, but also good activity levels in in markets such as Brazil and Argentina, fairly new market, Of course, in Q4, the big impact was the PTC orders, in the US.
EMEA, that I've talked a lot about being a stable region. I think very encouraging to see, orders growth of 32% year over year. Of course, Norway with a gigawatt had a significant contribution, but also very good activity level in in many countries such as Germany, France, and Sweden. And uh-uh those are the same markets actually plus UK in Q4 that drove the growth. To 56%.
Also good improvement in Asia Pacific from a considerably lower level, but up 10% year year and 72 in the quarter, driven by Australia, to a large extent, but also China, almost par with 15 from an order intake point of view. Looking at delivery then up 29%. So really high activity levels throughout the year. And again, also encouraging to see that actually for the full year, all regions contribute to the growth. Starting with America's up 44% for the year, 62% in the quarter.
Very good development in the US also on the delivery side. As well as several countries, in Latin America. In the quarter end 64%, of course, also helped by part of the PTC components that were delivered in Q4. EMEA up 9% year over year, broad based as I talked about, Nordics, Germany, offshore, the freemium, or what platform here I should say. UK to some extent, PLN slightly, then offsetting more than offsetting the decline that we saw in Poland.
Over the year. In Q4, it declined very much to that we had an extremely strong Q4 in 15, in Poland. Also, good, increases again from lower level in Asia Pacific, plus, 83%. For the full year and over a 100 in the quarter, very much driven by China. We took then orders in 30 three countries across six continents in 2016.
We also installed in 1 new countries taking our total footprint now to 76 countries. And signed orders in into new countries, over the air. So global reach, import leverage for for Vestas and also important to continue to build on. Looking at the backlog, as I said, record how at 19.2000000000, 2.1000000000 improvement in the quarter, and we saw an increase on the turbine side of 1.3 and on the service side of 800,000,000. So again, a good development.
Of course, US, a lot of interest in the US market, and, I must say I'm really pleased with our performance. Deliveries of approximately 4 gigawatts during the year and an order intake of approximately 3 and a half gigawatts, enabling a significant future potential. As we expected, and we talked about in Q3, we had a very busy quarter in the US up to, I would say, the last day of the year. And we actually had a very busy year also on the delivery side. Our factory output from our factories in in Colorado were up considerably, on delivery also compared to to 15.
On the order side, we took orders on PTC components of future project pipeline potential of 1.64 gigawatts including rate power and then normal orders or non pay to stake will components order or 1 point 8 gigawatts. All in all, for me, a very satisfactory result, we have over the last year, improved our market share in in, the important US market. And as I also talked about in Q3, our focus was, on the order side to qualify the maximum potential in this market. If we look at overall market expectations. And again, these are numbers from make consulting as were the numbers that we referred to in Q3.
Make has a number of the overall market of 4.5 gigawatts in PTC, qualification, and then around 10 gigawatts of start of construction and estimate then, the market approximately 40 gigawatts. Again, make numbers from 17 to 20. But of course, as you can see, on the numbers that are considerably upside to that the estimates, looking at the qualification and start of continuous construction. But I also think it's a fair estimate to assume that there are some over qualifications in the number of PTC components. So a very good, very stable market with good visibility, and of course now we need to maximize the potential of the qualification that we have secured.
Looking at the joint venture that we have for offshore together with Mitsubishi Heavy Industry, we've also had a good a year with, both building the backlog that now is a 2.5 Gigawatt year to date or year to yesterday, I should say. Announced orders, was at 1.4 and preferred supplier 1 gigawatts. From an execution point of view, also, a year with a lot of activity where the joint venture started the manufacturing ramp up and delivered, started to deliver, I should say, because it's not complete the first 8 Megawatt project. And, with that manufacturing ramp up also, employed about 500 additional people. With that, I'll leave over to Micah to talk about financials.
Thank you, Anders. And, again, what the unders have gone through with you in terms of, good activity throughout 2016 is, also well reflected in the full year, P and L. And here you see revenue increase of 22%. And then more importantly, you see the leverage, on the EBIT. So we have an EBIT in absolute numbers increasing by 65%.
Gross profit gross profit is up 41% year over year. And well reflected in the gross margin in percentage. So we're delivering 20.8 compared to 17.9%. Gross profit is driven by the higher revenue, so very good absorption in the production yet again, a very favorable product mix and improved average margins and also coming back to the stable price development that we see in the market. Fixed cost is well under control.
So we have increased 9% compared to the revenue increase of 22. So again, very good leverage as you can see on the EBIT line. You also see the income loss from our joint venture of 101. That is both a reflection of the operational result in the joint venture, but also you have a certain degree of elimination in that number as we have discussed before. But this is, I would say a reflection of the ramp up of the V 164 and, therefore, also the depreciations in on the same technology.
Q4 income statement is also an improvement compared to last year. You see a revenue up 9% gross profit up 16% and the EBIT up 25%. So yet again, a good leverage, on on the performance of the company. And you also see that we have delivered 15.2% compared to 13.3 last year. So again, a good improvement in the overall margin in.
The leveraging on the SG and A continues to be focus, focus area and, obviously important that we continue to control. And I think we have proven that for the last few years, that we manage growth well without increasing the cost base. So, we are now down to 6.9 percent of revenue in Q4. So, I would say a very good achievement in the company. So again, well under control.
Service business continues to to grow. You see a growth of 15%. That is, including both, the 2 acquisition and organic growth. And more importantly, despite 2 new acquisition and integration of the 2 in 2016. We deliver a margin of 17.2%.
So more or less flat compared to last year, which I think is a great achievement. And the integration obviously is well on the track of the 2 acquisitions. The backlog of the order backlog, Anders mentioned and is growing at a good and satisfactory level. Balance sheet continues to be strong. You can see the net debt performance.
So again, a very good improvement We'll come back to that later. You know that we got a lot of orders in late in the year and considerably high amount of prepayment I. E. Down payment. Net working capital therefore also because of the prepayment is at a very good level, an extremely good level that is also well reflected in the cash flow for Q4, which again I will come back to.
Solvency ratio is well within the boundaries of the midterm, 32.1% and we have stated we should be in between 30 35. So again, a good level. Changing working capital over the last 12 months We ended the year at a negative of 1.9. That is, again, a reflection of the prepayments that you can see also for the last quarter and obviously have a great impact on the on the cash flow. And networking capital.
We are not expecting to be at this low level. I don't. We're not guiding for the networking capital, but it is an unusually good performance because of the late income and payments in the latter part of the year. So I would say that together with the cash flow is probably a combination is a fair assumption for 1617. So, we will make deliveries in the beginning of the year, but we got paid late in 2016.
But again, well under control and a very good performance. Warranty provisions, and loss production factor we continue to consume a low level of warranties. You can see that we have increased. So we are up 2.2 percent. This provision is obviously reflected in the Q Four numbers.
And the this is we have chosen to increase because of a very high activity level, more outsourcing. It's no specific reason for it and we will go back to the normal 1.9 is the expectation for next year or this year rather. Sorry. Loss production factor continues at a good level be below 2%. So again, the good work really pays off.
Cash flow statement for the full year. Here you can see what we have been striving for is obviously to continue to improve the earnings. And cash flow from operating activities continues to improve, for the full year. And the change in net working capital here, you see a more a reasonable level, you will see the difference in Q4. Cash flow from operating activities obviously also improved and at a good level.
Investing activities is again, what we have guided for. And therefore, you see cash flow excluding securities is 1564 and cash flow from financing activities. What is what is which share buyback program and dividend that we paid in 2016. Q4 here you see the change in net working capital. So you see a positive swing of 638.
That is a reflection of the the late, down payments that we received, in the year, some of that will be now delivered in Q1. So that again is why I think it's more appropriate to look at the cash flow as a combination in terms of 1617. Free cash flow for the quarter is, for obvious reasons, very high. And you see here the latter part of the, financing activities, I. E.
The share buyback. Total investment increased compared to 2015 by close to 200,000,000. The main Reason for CapEx is investing in blades as an also technology as we have done previously. But you see some extraordinary items and that is the acquisition of Availin that materialized in q1 of 2016. And also the transfer of the facility in Laucoma, from at least to own building which have also reduced the cost.
Capital structure continue to be met. So we have a net debt to EBITDA well below 1. We are actually negative 1.8 And the solvency ratio is again well within the boundaries of 30 to 35%. So good performance on the balance sheet. Capital allocation, the dividend per share proposed in DKK is for a full year 69.71.
And the the dividend payout ratio, as you know, it states 20 5 to 30% of the net profits. We are proposing the higher level. This needs to be, approved at the AGM, but this is the proposal from our side. And we also performed a share buyback program, late 16 or not from August 16. And we are now, as we have, are selling the offices in, a house.
We are suggesting a share buyback of €95,000,000 to start from February of this year. So again, that is, the proceeds from the building cell in Ahus. The overall methodology when it comes to to share buyback has not changed. We will revisit that at the latter part of 2017. Return on invested capital, continues because of extremely efficient balance sheet, but also good earnings continues to grow.
So we are at a very high level of 265 percent. So obviously very good improvement compared also to Q3 that was at a high level. So very efficient on both P and L and balance sheet. By that, anders will tell you more about the strategy.
Okay. As I started to say, this is, of course, the time of the year where we do an an update on on the strategy and any ideas that we think are needed. So starting with the overall picture that at least some of you have seen before. So looking at the long term forecast, from the international end of the agency. We see a very solid forecast for renewable and especially for wind.
Renewable energy is expected to to be about half of the additional capacity up to 2040 overtaking coal around 2030 and win this forecast to take the majority of this growth. The main drivers, for this also remains. So, in OECD, It's a it's a replacement market where the speed of the replacement depends on financial end of life. Of the existing generation and on the CO 2, target reductions. That was all the main drivers on the timing.
In the replacement market. While in on OSCD, the new build is to cater for the increase in overall, electricity or energy demand. We also saw that wind estimated to approximately 18% of the new build capacity last year and the global penetration of wind around 7% today. The key to drive growth is of course wins increasing competitiveness and already today wind is on par or below fossil fuel in many markets and it's the most competitive competitive renewable energy technology. We see that on a global, sorry, global average base, but also then, within different regions where, of course, the liberalized cost of the energy varies greatly not just for wind but also for alternative sources.
We have seen a very good development in the last 5 years. For example, the liberalized cost we are not in the U. S. Has decreased by more than 50%. In the last 5 years and we see similar development in other markets.
And the global average according to Bloomberg, New Energy Finance estimated around 15%. $3,100,000,000,000 US dollar is expected to be invested in wind up to 2040 and we expect the positive development in levelized cost of energy for wind to continue going forward. Looking a bit more in detail in the different segments of our business on on the market forecast up to 2020. And these are forecast from Bloomberg New Energy Finance and from Make. On onshore wind up to 20 20.
And we see, stable high volumes in both fore cost is, up in this, time period. A slight decline between 1617 and then a global CAGR around 3% up to 2020. And that's the then that is if I take the average of the 2. Of course, China is forecasted to show a slight decline, a slight decline. And if we exclude China, that, of course, have a fairly big impact on the number.
The CAGR from 17 is around 4%. Again, these are forecasts that we think are relevant to use for us in our planning of the strategy. Looking a little bit more into the different regions. We can say that in Americas, the growth is primarily driven by the US market and it's the current PTC structure drive the demand is the main driver for the demand from 17 to 2022, 2023. But also a generally good support in several markets in Latin America.
Brazil short term challenges, but the near term potential definitely in place, giving an overall CAGR for Americas around 5%, again, referring to the same, analysts. EMEA continue to be a key driver for the wind industry and and definitely for Vestas as well in Europe It is the, 2020 and 2030 renewable energy targets that provide stability. We see general move to auctions in the different markets and that is, by the way, not just in EMEA, but globally. And Germany will transition in the 17, 18 timeframe. Good growth opportunities in Middle Eastern Africa from a lower base.
And, on repowering, we see that market to start in this time period primarily in Germany and Denmark and also actually in the US. That's where we see that the market during this period and then more global after 2020. In Asia Pacific, the forecast is flattish for the total period but there are some, some large, changes within the different markets. China is addressing curtailment challenges. And therefore, we see a reduction in in the overall volumes in China, but still on a good healthy level.
And the commitment to to win remains. In India, there are ambitious targets in in place and this this is also a market that starts a transition to auctions and we'll start with the 1st auction this year schedule for March. We see good growth in Australia coming back and then a good growth opportunities in seeing single markets throughout the region all in all compensated for, the slowdown in China. So that's on shore business. If you don't look at services, we see a good growth scenario.
Again, this is from make consultants showing, about, 9% CAGR during the next 10 years. Offshore also is forecasted to show an impressive growth from a CAGR point of view, even if absolute numbers are still small compared to onshore. The market will start and we've seen that in Northern Europe and over time then move to Asia and we're seeing activities in China. And then more mid to long term also to Americas. That leads me then to the overall strategy.
We remain well positioned for these market trends and the strategy is on track. We have fine tuned our activities to reflect new opportunities and changes that we see in the market or to enabling objectives or to deliver the lowest cost of energy solution that is really about the competitiveness of our wind turbine portfolio and our service portfolio. And best in class global operation. So that remains with this in place we can deliver on our objective to be the leader in wind power solution and service solutions. We have adjusted our vision somewhat to be the leader in sustainable energy solution.
The reason for this is that we see more and more requests from our market, from our customers to participate in projects and activity is with the aim to increase the penetration of wind. That could be grid integration projects, wind storage projects, and how we can optimize the energy distribution, the energy control system by for example combining wind, solar hydro and storage. For us always with aim to optimize and penetrate wind further. The definition of the global leader remain for us, it's about leader in revenue and the underwriting best in class margin, and of course, to be the preferred partner to our customers. If we look at the sorry, if we look at the execution, on our strategy, and the key, achievements 2016.
I would say that we do great progress on growth faster than the market. We had a 30% growth in delivery during the last year and also a record high 15% year over year improvement in orders. On the service business, we are delivering on our mid term strategy of growth of more than 40%. Uh-uh during last year as you heard revenue increased 15% and the order backlog was up 1,800,000,000. And we have also further strengthened our capability, in multi, brand services.
On the lowest cost of energy solution. We have the broadest product portfolio in the market on 2 or 3 and 8 Megawatt platforms. We continue to improve the energy production. For example, the free Megawatt has we've seen improvements of 35 up to 35% since launch or industrialization and cost of targets are met and we have delivered to the our joint venture, the most the world's most powerful turbine in the 8 Megawatt platform. And we continue to invest in innovation.
Multiconcept rotary such an such an example and also a new technology that can enable further reduction in levelized cost of energy. Best in class operation. It's all about margin improvement and how we have delivered on both EBIT and gross profit improvement during last year. So to summarize, a bit of, all different business area and how we see them, we see stable growth in the in the planning period up to 2020 for the onshore market and of course here our objective remains to grow faster than the market and to do that it will be important to to continue to gain a market share. In the service business, as I said, we see an overall high growth in the market and our objective here is more more than 50% growth by end of 2020 compared to 16.
So a high ambition to grow faster than the market also in the service. Area. And in offshore, where we have a partnership with MHI, they'll be active is to double the revenue over the next 3 years and a pre, tax profit breakeven by 2019. And of course, from a Kaggle point of view, this is also an area where we see solid growth. As always, for us to it's important with the execution of the strategy and to do that, we need to continue to both build on and leverage our key differentiators and that will continue to be the global reach Again, good progress on on new orders and delivery, during last year.
It's about technology and service leadership, that will deliver the the lowest levelized cost of energy. A full range of turbines and service offering, and also that we actually have the largest R and D investment in the industry. And it's about scale, with the largest installed base of 82 gigawatts now, in 76 countries, 71 gigawatts under service, and the data insight we get from monitoring 32,000 turbines. Our ambitions remains on revenue to grow faster than the market and be the market leader in revenue, to generate best in class margin on the ROIC over the cycle double digit free cash flow positive and we have also maintained our capital structure and distribution policy targets. So with that, we go into outlook for 17.
And in 17, we expect another year with a solid financial performance with a revenue in the range of 9.25to10.25000000000 with an EBIT margin before special items of between 12 14%. Total investment approximately 3 €50,000,000 and a free cash flow of minimum 700,000,000 and then we should also say that we have accounted for the sale of the building in both the investment numbers and the free cash And on the service business, no change. We expect to continue to see growth with a stable a margin. So with that, we move over to Q And A.
Thank
Our first question comes from the line of Christian Johansen from Danske Bank.
Yes. Thank you. So my first question is regarding the US outlook for 2017. Going back to your Q3 conference call in November, you stated your expected lower activity in in the US in in 2017. So can you update us on whether that is still your outlook and also whether you have gotten more or less positive on the activity level in the U.
S. For 2017 compared to how you saw the outlook in November?
Yeah. No. I mean, we what we referred to very clearly in Q3 was the external market that expected on the delivery side a bit lower delivery in 17 than in 16 and and we also confirmed that we thought that was a reasonable planning assumption and and I think as far as I've seen from the external numbers and also the external numbers I referred to here, that's still the case. It's not a significant lower activity level in the overall market, but expectation is that it will be a somewhat lower activity level. Then for Vestas, I mean, our guidance for for 'seventeen is the guidance we asked, we asked Gabe.
So, that's our best estimate, overall for next year. But I have to say overall in the US, and I mean, there's still quite a lot of unknowns. Of course, uh-uh exactly how the delivery will be faced over the years but I remain as as confident as I I worry in Q3 that the US will overall be the 2nd largest market in the world for wind. It will be a very stable market now in the current PTC cycle. And and then exactly how it will pan out over the years.
I think it's it's still very hard to predict.
But just to see if I understand correctly, so have you also included a drop in your U. S. Deliveries in your guidance for 2017?
I mean, we haven't guide specifically for specific market for 17. We provided an overall guidance on on revenue for 17.
Alright. Fair enough. Then my second question is, if you if we stick on on the topic of your revenue guidance, you're expecting revenue growth between minus 10% to 0% your backlog for projects at the end of the year is up 8%. You're expecting increasing service revenue. So the expected drop in your project revenues must be even larger than what you're guiding for the group.
So can you just help me understand why you're expecting this drop despite the backlog being off?
No, but I I think there were many questions in that but but I mean, the guidance is our best estimate for the time being. And and as you say, the the upper end is is very close to this year and lower end is is a drop in revenue I mean, if I look at the overall market that I talked a lot about, and and looking at again external forecast is forecasts. We see an expectation of a of a certain drop in in delivery. I mean, it's not major at all. But there is uh-uh an expectation that the delivery globally can be a bit lower in 2017 compared to 16.
So of course, that's one input for us. The other input is, of course, as usual, this is a project business with the same profile as usual, the the sum of the projects that we will deliver and get reach customer milestones from during the year will be the revenue for for 17. So of course that we have the normal uncertainty when it comes to yeah, project completion during unexpected very busy second half.
Okay. Thank you very much.
Thank you. Our next question comes from Casper Blum from ABG. Please go ahead. Your line is now open.
Thanks a lot. Also a bit a guidance question from my side, you're changing a bit the way you guide. We used to have this minimum guidance and now you're giving us a range, both for the top line and for the EBIT margin. How should we really read this? Is the bottom of these guidance is sort of comparable to your old minimum guidance Is that a fair assumption?
And also, I know it's really difficult to quantify, but do you sort of feel that you are are more or less cautious in this type of guidance than you were in the old one? That's my first question, please.
Mean, the reason why we changed to a range is that we felt that that was the most appropriate guidance at this point in time. I think it's fair to say that we We also see in a sense maybe a bit more stable, market going forward than what we've seen before. And of course we continuously hopefully improve our accuracy over time as well. But but there are and and actually also to be fair, we have gotten feedback on the minimum guidance that, has not maybe being completely understood, all the time. So we also have received feedback on a preference that we go more to a range.
So It's a number of different factors, that we feel that this is the, appropriate way to, to guide for now. And, I will not comment about, anything within the range. It is range. And, and, And, there is no change in people. It's still me and Marika.
And
then a comment or sorry, question regarding the U S and the different types of PDC qualification orders. We know that you've now announced some safe harbor component orders. Can you sort of give an some sort of flavor to what do you think is the split between what is PDC safe harbor and what is a continuous construction orders?
Yeah. I think that's that is actually really, really hard to say. I mean, and as I think I said many times also in Q3. Our focus in Q4 has been very clear and that is to maximize our share of the available orders. Uh-uh independent on if the customer preferred one in front of the other.
So, I mean, that's been our focus and I think we've been been been successful on on that and And then of course, it's up to the customers to decide, what type of qualification they will use depending on the project they have and the timing they have and and and I think that remains to be seen. I I have no reason to to change the sort of speculation we we had before on on the percentage. But but I also have to caution that that that, there are no further clarity on that today than than before. I think, and our focus has been on on maximizing our potential going forward in this market.
Fair enough. Then just finally, a quick question maybe for Marika. Can you give any sort of guidance to the contribution from the joint venture in 2017, will it start to be a bit better?
Well, we're not we have, I think we have said something very soft And in 2017, we will continue to see, the ramp up. We will also continue see the uh-uh consequently the amortization or the of the R and D or the V 164. We are expecting a a breakeven EBITDA for the joint venture not until 18 and uh-uh a positive net profit in 19. So Nothing specific on 2017 of although obviously depending on the volume in the year or the revenue in the year, you you we will see the development but not a positive impact on the EBITDA in 2017.
Okay. But maybe just better than the impact that you've seen here in 2016?
Yes. It's obviously, I think it's to be very specific, you have around 1 third is the eliminations that we have talked about previously and 2 thirds is really operation. So yes, we'll sign in for that. Thank you.
Thank you. Our next question comes from Akash Gupta from JP Morgan. Please go ahead. Your line is now open.
Yeah. Hi. Good morning, everyone. My first question is on pricing in our Q4 orders. And mean, you said that it was stable overall, but maybe if you can comment by regions because we had one of your U.
S. Competitors saying in their Q4 conference call that pricing in negative pricing in Q4 accelerated due to PTC dynamics. So maybe if you can if I can make a comment, and then I will come back for my second question.
Yeah. No. But, of course, I will not comment on on what our competitors say on pricing. I think that has to stand for them. As as I said, I mean, we see we see a stable pricing and and as you can see on on our average on our average selling price and order intake.
We we actually saw a bit of an uptick tick in Q4. Of course, as you know, we had quite a lot of US orders in the quarter but we also had a of orders from from, from other markets. So, I mean, overall, we see we see the the trend being fairly stable and and and as you can see also in our report. Having said that, of course, it's It's a very competitive industry for sure and and as I said before, I mean, we we definitely have to to fight for every order that we we take in. But, I mean, and then I can't really comment on on, on what they competition is failing.
So basically, I mean, you haven't seen anything unusual in, pricing in U. S. Orders. Is that a fair assumption?
I mean, we don't give any pricing on the specific regions but I think you can look at the numbers. You you know where we took orders in Q4. So I think that should should, tell you something. Yeah.
And then my second question is also on the US if you can talk about how much localization you have in terms of local content and then potential potential impact from any border techs or maybe reduction in corporate tax?
Yeah. I mean,
of course, we we have the complete manufacturing capability in the US. So, uh-uh of course, we we reproduce our all our deliveries basically in the US Colorado factory. So, and and that also goes from components. Absolute majority of all sort of components in the the the turbines are or US manufacturer. So a very very high degree.
So that is of course good and as you can see, they've been very busy and we have been very busy scaling up that production. Both Naselle blades and towers in the US and we also have the capability to introduce our new new project products into the factory setup in the US. So we have the flexibility they are also to to, balance if, if the market so wishes, so to speak, more free megawatt compared to 2 Megawatt or new 2 Megawatt platforms as well for that matter. So, and actually from a employment point of view, US is our biggest We are close to 5000 employees in in the US which is more employees than in any other countries for Vestas, including Denmark.
And maybe a quick one on organic growth guide, organic growth for services. I mean, can you talk about what was organic growth in services for full year 2016?
It's around no. It's around 8%.
Thank you.
Thank you. Our next question comes from the line of David Ross from Barclays. Please go ahead. Your line is now open.
Good morning, Anders. Good morning, Marika. I have a question on the backlog and in particular on the margin quality that you perceive in the backlog. Could you comment on that? Is it going up?
Is it going down? And then I'll have another question to question after that.
Well, if you look at the order backlog, I mean, we, we have our methodology when it comes to taking in orders, or taking orders or not or or rather approving them. And consequently, we have, a good quality of our order backlog.
Okay. But I was more interested in kind of a sequential development, commentary, if that's something you have to mind.
No. I I as I said, I mean, we're not commenting specifically on the margins. But, as we have a rigorous process in how we approve the orders and that includes the the the pricing and consequently the margins. We have a good quality on our order backlog overall. Otherwise, it wouldn't be in there.
Perfect. And then the second question around the JV here, and then I, you know, I don't wanna belabor the point, but I I'm a surprised to see that that thing will only break even in 2019. How is it the the gross margin development there? I mean, you you probably see where I'm going at. Right?
Are these orders taken in at at prices that are perhaps a little bit lower than they would be in a in a steady state or or is really, let's say, a, an accounting issue whereby you just have an enormous amount of amortization and appreciation running through a business that's just not scaled up fully yet.
No. Yeah. Of course. I mean, it's without going into the detail on margin, but where we are in the in the timing of the joint venture is, of course, very much your your late of description that I mean, this is still not the run rate business. I mean, this is more of a project business where, of course, we, the joint venture have them, both, big cost in in scaling up the manufacturing, delivering the the completely new turbine.
Amortization on the R and D without much revenue. And and of course, there are a lot, further cost out possibilities in a new platform once you get into a bit more steady state on, on, on a run rate on delivery.
And are you at, kind of at liberty to say what, a run rate looks like in terms of annual deliveries.
No, I will not go into specific run rate margins in the offshore business. I mean, of course, our our objective for the joint venture longer term is of course the that I should be on par with, with onshore.
Okay. Fair enough. Thanks so much.
Thank you. Our next question comes from Claus Alma from Nordea Markets. Please go ahead. Your line is now open.
Thank you. Also two questions from my side. The Q4 product margin seems to be somewhat better than we've seen in average in 2016. Can you try to explain what's behind that performance and also how the performance in Q4 is compared to the backlog? That'll be the first one?
Well, as as I think I answered it previously, if there are no standard margins when it comes to Vesta because you have a blend. Overall, we have continued to improve the margins because volume plays a big role and obviously we have a good absorption. We're also taking the cost out. We have the mix. Question that would always be there, which is a combination of all of them.
I mean, Q4 is a good performance, but I think overall 2016 was a good performance. And you also see in the guidance which proves that we continue to have good quality of our orders and consequently, the, order backlog is very satisfactory. So there's nothing particular.
So should we look at 2016 as the same level we see in the backlog or how should I understand your your your answer?
My answer is basically that I'm not commenting on the the gross margins or but Having said that, you see that we have, improved the overall gross margins year over year. We continue to have as tight monitoring of the approval of projects and obviously margin quality is one important factor and I've said that we have good quality on the order backlog. So that doesn't mean that we will not continue to improve from there. But I don't see that we have a big hit on the on the margin side.
Okay. Thank you. And then the second question, one of the slides showed that margin improvement is part of the strategic direction of investors. Does that mean we should expect any margins to increase going forward? Or
I mean, margin focus is important because that's obviously how you get the overall leverage from from your, performance. So I mean, that is part of the overall efficiency gains that we have stated in the operational excellence. So yes, focus on margins will be there. And obviously, we will try to further improve.
Based on the same revenue level. So it's not driven by leverage per sport driven by underlying, operational improvements?
I mean, underlying operational improvements, then obviously, there are factors like the market that we don't control. But with what we know, we will, we will try to further improve the margins. Yes.
Thank you so much.
Thank you. Our next question comes from faiza Ahmed from SEB. Please
go ahead.
Your line is open.
Hi. I understand, Marika. A couple of questions from my side. Firstly, regarding Q4 March especially the gross margins compared to, the 1st 3 quarters of the year, the leverage in Q4 doesn't seem to be as high. Is that, solely driven to driven by high air warranty provisioning in in q 4, or have you also taken some other costs in q 4?
And maybe if you could also comment on what specific events have triggered these higher voyage provisions in Q4?
Yes. And obviously the warranty provisions that we have made in Q4, have an impact. But having said that, I I think still think that, the margins that we managed to deliver, of 20% is a good reflection of the overall performance in the year. And as I stated earlier, the provisioning is for nothing specific, but we have a high activity. We have a global footprint We also have, some new technology.
We're outsourcing more and all of the above led us to the, conclusion that, and the assumptions to increase the provisioning for in Q4. And as I said earlier, we will go back to the 1.9% in 2017. So it's for nothing specific, but just, general, activities within VESTA.
New technology and new supply chain and so forth. But but, I mean, it seems just very strange that you hike the provisioning for 1 quarter and then you just reverse to the old old level again coming quarters. I mean, any comment on that?
No, I don't think it's anything strange. We have done the assessment And because of all of the above activities, I think that the the what we show is also that the consumption continues to be low. You see the LPF is below 2%. So we have done an adequate assessment and considered that therefore done the provisioning. So nothing extraordinary in that.
And then just one final question regarding capital allocation. I mean, you're this small buyback program here in in q 1. But you do have a quite large net cash net cash position. I mean, would would that decision what to do with that net cash position come in during the second half of the year?
Yeah. But I mean, we have also said that we will continue to to invest in the business. I also stated that, yes, the net debt is at a very high level at this point, but also that we have a very unusual Q4 that obviously has increased. And, we will continue to invest in the business. We will do the bolt on acquisitions when we find them.
And, we will consider, a share buyback in the second half of the year as we have previously done. What we have done now is that we do do an extraordinary share buyback because of the cell of the as over the buildings in Ahus.
Okay. That's that's right here. Thank you.
Hello, Food. The line from Citigroup. Your line is now open.
Hi. Hi. It's Hook from Citi. Thanks for taking my questions. My first one is on the average selling price of your order intake.
I realized the first quarter was a bit special because of Norway. If I look at the second the 3rd quarter, which below 0.9 and then 4th quarter, you are at 0.95 And I understand part of that is is is weighted. This is weighted towards the US orders. Is this the run rate we should assume for the follow-up orders in the U. S?
My first question.
But as I said before, we don't comment on Pacific price development in in different regions on we do we show the global average selling price and order intake and we have as I said in in the quarter, we see a positive development but that is is we can say there's no these variations depending on scope. For example, more or less, APC, mix, and and then in in the quarter also a bit of of FX. So, uh-uh we are happy with that we see a fairly stable, price in in the overall market and, Yeah. Then we'll see what the future will bring.
Okay. And, my second question is is also related to the US market. From the conversations that you have with your customers, you get the sense that there's appetite for new PC, safe harbor orders. In other words, cost our customers happy to take 80% of the PPC, for for this year.
I I think that that's, of course, a very good question, but I would say that, that, remains a little bit to be seen. I I feel it's fair to say that of course, uh-uh the customer has been very focused in Q4 on on on the sort of period up to 2020 delivery and a 100% pay to say. So, I still feel that there will be an appetite, for 80% PTC. It's still a fairly good level. But I think it's also fair to say that, that all the focus in Q4, has been on on the 100% PTC, cycle.
And and of course, it's been a rush to to focus on that for now. Think that, as I said, it's a good question, but but, I don't have a, I don't have a a feel for that now. I think we have to wait a bit and see through us the the second half of this year.
Sure. Thank you.
Thank you. Our next question comes from Klaskill from New Credit Markets. Please go ahead. Your line is now open.
Yeah. Hello, Carlos Kiel from Nuggett Markets. Two questions as well. The first question is related to your strategy where you aim to become the global leader in sustainable energy, which could lead you to to to add some new services. Is that something you could add organically, or would that require acquisitions?
That would be my first question.
Yes. No, but the strategy before is is about organic growth and and what we see happening in the market both on customer request and actually also received some tenders now being out is uh-uh the combination of storage and wind. For example. And and also some hybrid projects with a combination of wind other renewables and and storage and and and from a technology point of view, we are also have incorporation with, for example, storage, providers and and on how we can optimize the interfaces between our wind turbines and those kind of systems and and also how we can optimize the energy management in in in new type of of energy markets where you have a higher penetration of intermittent generation such as wind or solar. And, so for us, it's, to answer for to those requests and we think that they are very interesting request from 2 reasons.
I mean, one of course and the primarily reason is to further increase the penetration of wind and also use more wind as a base load And secondly, of course, that it's an area where our knowledge from a technology point of view from the wind side again has a high contribution. So, that is why we also then want to reflect that, you know, long term vision, that we see opportunities in those areas, but it's not any sign of that we are looking at the acquisition outside our our sort of, wind space.
Okay. Excellent. And then my second question would be, We have talked about these, provisions that you have made in q 4, but I was just wondering whether there are any other one offs in q4 that in any way has impacted the P and L numbers?
Well, I mean, we do as I said before, we do regular assessments, in in every quarter. So it's nothing unusual for Q4. We've definitely provided for, for warranties. You also have, I mean, you have certain provision for, for bonus that could potentially impact the the the Q Four numbers, but it's nothing that we don't do in any quarter. The, we have highlighted the, the, the provisioning for warranties because that's a high number.
Okay. But so so no write downs on the projects or whatever that we've seen?
That that we would disclose in that case.
Excellent. Thank you very much.
Thank you. Our next question comes from Gabriel from Macquarie. Please go ahead. Your line is now open.
Hi, guys. Just a couple of questions from me. You mentioned a larger share of EPC contracts is one of the reasons for the order intake ASB increased this last quarter. Could you comment on whether this came from the US? And if so, what was the sort of changes in the market there to allow you to win those EPC contracts?
And I'll follow-up with my second question afterwards, please.
Yeah. No, I mean, U. S. Is more a typical, supply, only, a region. And and that we don't see any changes in that.
So It wasn't significant, but we saw a slight more, percentage of APAC, but that is more the the the traditional markets where you have a bit more APC. So and and not significant in any in any way. And and in the US, it it there was no change from from previously. It's primarily it's the supply only.
Okay. Fine. And, just on the topic of the U. S, have you noticed any changes, from
a tax equity financing appetite from your customers?
No. Not really. I I think, of course, there there are speculations on if a the potential lowering of the corporate tax, what kind of impact that could have on the tax equity market, but so so there is definitely an Eric, discussion in the market, but nothing that has impacted our customers appetite on on, on securing PTC components as of now, as we also see in in the fairly, I would say, good intake of of PTC qualify qualifying components. But, it's definitely a discussion in the market if that would mean, a change in the customer mix, potentially at to, the more the more bigger utility or the more bigger developer, compared to maybe smaller developer. That that is it's, it's possible that that could happen if the tax rate would be considered below.
Okay, fine. And my final question is about, again, about the U. S. Market. When you look at your customer base right now in the U.
Do you has there been a change over the last couple of years towards more, traditional regulated utilities as opposed to independent wind developers?
Yeah. No. I think that's correct as you say. I mean, we we definitely not a change, but we we, yeah, a change in the sense that I think we have white and all customer base quite substantially in the US and and I think that is a big part of or why we have managed to to grow the market share as we've done during the past year is that we have white and the customer based probably fair to say that a couple of years ago, our customers were were mostly the the the well known key accounts, European based key accounts and and we have no managed to to to penetrate a lot further into the big US based utilities.
Okay. Thank you.
Our next question comes from Pinakidas from Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Hi. Many thanks. Good morning, everybody. Thanks for taking my questions. I've got a question around the U.
S. And then I've got another question around input costs. So the first one on the U. S, I mean, ultimately the way we look at it is it depends on whether regulation in the U. S.
Is stable or not. You've had very good orders. That's clear. You expect certain amount of revenue this year. That's also quite clear.
But can you give us any idea about or any insights into how or if any changes you expect from the U S? Have you heard anything from the U S. President's office? We haven't seen any tweet yet. What is your feeling around whether the president is gonna look at when maybe potentially change something, maybe look at the IRS rules, maybe even positive side include wind in the infrastructure plan.
So any sort of idea around that would be quite useful from your lobbying efforts and your interactions with customers. Sort of related question to that is also in 2017, are you expecting some intra year orders within 2017 for 2017 delivery? And also at the end of the year, are you expecting any PTC component orders for the next cycle, the 80% cycle? So that's my sort of first question around the U. S.
Second question is a very simple one. We're starting to see some input costs rising in various items. Is that already factored into your margin guidance? Thank you.
Yeah. That was, a lot of questions in your first question, but let let me try to to answer it a bit on the US. And, I mean, as we see it is that, I mean, the midterm driver in the US is, of course, the current PTC cycle. And and, and we don't expect any changes in in that PTC cycle. We have not heard uh-uh through our uh-uh industry associations in in the US where we participate with together with customers and competitors.
We haven't, we don't have any indication that there would be any changes to the current PTC ruling with a strong bipartisan support. So And I think, and I haven't had any direct contact with administration, so I don't have any insights or or I haven't read any tweets, on your question on tweets that would that would indicate that there would be any changes in the pay to say cycle. So that is that is our planning assumption that the current pay to say, rules and the current IRS guidelines rules remains. And and, and, what our, what the wind organization is also telling us and our our internal, people in Washington as well is that they that they they see that as, as the scenario going for. So, so that's our planning assumption.
And I think if I hear what other players, US based players are are saying it's very much in line with that. So, Then the second question was around, delivery of of components. And and of course, pizza components. And and, as you know, I mean, there is a 105 day delivery period from from orders. So, we definitely delivered PTC components during, last year, in Q4.
And it's definitely also fair to assume that we will have, delivery of pay to see components, during, the start of 17, on the orders that we took in, in the later part of 16. So, probably fairly equal between the years, when it comes to delivery of, of the PSA components within the 105 days. On the appetite for the 80 percent, PTC, components, I As I said, I think it's very early days. I think it's fair to say that, that, the customer and the market really focus in Q4 on the current cycle and and had quite a lot of work to be done to to to to do that. So I think that remains to be be seen.
I've seen some early estimates again from external sources so North Westas estimates for make that showed a fairly reasonable, potential on on also pitch c components towards the end of this year, but I think that that really remains to be seen.
Sorry, I was also asking about any intra year orders that you might expect in 2017 for 2017 delivery, not just the PTC components?
Yeah. I mean, of course,
I mean, of course, we're always looking for in fraud orders as well in a I mean, that that's that's obvious. So, but we haven't, we feel we have a adequate, all the coverage for our, our guidance overall for the year and, and of course, and of course we will continue to to work on on getting more orders and we we will do as as previously that once the orders are are film and unconditional, then we follow our normal, order announcement process.
And when you say adequate orders and you also mean the top end or just the midpoint?
I mean, for the range.
And the last question was just around the input costs, if you can give any insights on how you look at margins in writing input costs environment.
Well, I mean, that is something we're mitigating and controlling on on an overall basis. I mean, that's something you face within in a lot of countries. So I don't see that that should be anything, any specific in in the US then we will follow if there are any changes, but we have a very good, footprint in the US that we're happy with both from our own production and assembling. But also from a sourcing perspective.
Thank you. Our next question comes from Jacob Henderson from Sid Bank. Please go ahead. Your line is now open.
Yeah. Hi. Congratulations on a final result. You seem to emphasize a bit more that you want to grow your market share, considering the more stagnant market looking forward. And now you clearly have above industry average margins at the moment.
How is your view on, on, compromising
these, margins in order to increase market share?
Yeah. I think that we have actually had for the last 3 year a a clear ambition to grow faster than the market and and that that remains and and you're also right. I I, as I pointed out that of course in a in a market that, has an overall market that is growing, slower than before. Then of course, market share gains will will, will be as important as it has been for the last 3 years. So to grow faster than the market continues to be, a key ambition.
I think we have succeeded really well. On actually both growing our market share and, the margins, in the last 3 years. And that is, of course, a combination of of many things, the competitiveness of of the portfolio the cost out, activities and, industrialization activities that we are driving. And then it's, of course, also depends on what the competition is doing. So, but our strategy is still profitable growth.
So, I mean, of course, our our ambition is still the aim to to to grow to grow the business in a profitable way.
Okay. So so even if we look into a market that could become a bit more competitive in the future. You still feel confident on your margins of, yes, the guidance of 12% to 14% in 20 17. And that that I did. This is, a level that you can hang on to.
Yeah. I mean, we we, of course, feel confidence on our guidance for for 17 and the the range we've given. I mean, it is, as I said, a very competitive market. And, but I mean, of course, we have taken the competitive market into a consideration when we do the the guidance for, for 17.
Okay. Thanks so much.
Thank you. Our next question comes from Sean McLoughman from HSBC. BC. Please go ahead. Your line is now open.
Good morning. Two questions from me firstly, on on the guidance range, this this new guidance style, thinking about the end of the range. Historically, you've been able to beat and raise through the year. It looks like a roughly 30% drop through on on the lower EBIT on on the lower sales guidance. So quite some decrease in profitability.
I mean, how confident can you be that There is no further downside risk to the bottom end of this range, and we can look towards the mid slash upper end. As we, as your style over the last 3 years would, suggest. That's my first question.
Yeah. I mean, the the the range, the range is our best outlook for the time being. Mean, you're right. It's a fairly broad range, but we are also fairly early in the year and and we expect to have the the the normal seasonality over the year. And and that means, of course, that in the end of the day, it will be the sum of the project that we are executing on.
I mean, we are of course, basing our guidance on on what we see, and what we plan for in execution both when it comes to number of projects and margins. In those projects, but of course, we always have the the the uncertainty of, of which projects falls, in which, period. And, and I would say that we have a good visibility on what we expect in the different projects. As Marika talked about, we have a we have a good we have a good process on on, approval of projects that we walk in to, we, of course, do, because of the nature of the business, of course, we do forward calculations on or no or or most if not all of the projects that we have and and we then check that with and and and we've seen fairly confidence on on our accuracy, to to forecast the different project but we still have an uncertainty, on the timing, that, that we normally have. So it is within those ranges that we, that we we guide for for, the business.
Follow-up on that, if I may. What about the sensitivity on the free cash flow guidance, which remains a minimum guidance, with on the top and the bottom range, bottom end of that range?
I mean, the cash flow is probably the the toughest one for us to predict. And I think you have seen that. We have guided for a minimum of 700, but when you look at Q4 of 6 seen, you know, the inflow of, of cash in the really late 16. And we have deliveries delivery requirement based on those now in Q1 of 2017. So obviously a more fair more fair assumption would actually be to look at the 2 years in combination.
But we, with the 700 that we have now guided for, we feel confident. Obviously, otherwise, we wouldn't guide for it.
Thank you. My next question on service is the integration of your service acquisitions complete now. Do you expect see a positive benefit to the service margin in 2017 as a result?
Well, the integration is not complete. We have just been better and quicker at integrating the 2 acquisitions. And that's why you see a very little negative impact from the 2. We are delivering stable margins as as we have said previously. But the integration continues also in 17.
And we have never expected it to be finalized before in 17 beginnings, 18.
Thanks.
Our next question comes from the line of Mark Freshney from Credit Suisse. Please go ahead. Your line is now open.
Hi. I have, three questions. Firstly, on MHI Vestas. If the business is loss making, I know that your MHI have have have put capital in because you've met the milestones, but would there be any incremental capital you have to put into that business? Secondly, on the offshore business, it seems that every order or every other order you get you're using a new version of the 8 Megawatt platform.
So is is it actually possible to make money in offshore given given that your clients are incessantly, incessantly pushing you for bigger turbines. And thirdly, I know in the past you've indicated you try and hedge out naturally, or financially FX risk, but you do have a lot of fixed cost in Europe, the US dollar is about 20 percent expensive versus the euro. I know you have been exporting complete wind systems on the 3 main platform from Europe to the US. So is it is it possible for you to quantify what the margin positive margin impact has been from from 3 years of euro weaknesses. Thank you.
Okay. Let me try to answer on the off shore side first. We we don't expect the the need for further cash into the joint venture with with on the offshore side on the platform, it's actually not a new platform. So so it is the 8 Megawatt platform And I think the good news is that we, that we have quite a lot of of design upgrade, generator upgrades, and and actually, trimming. I I would call it maybe the technical paper would be a bit upset with that but but that we actually can get increase the the nominal power output of the existing 8 Megawatt platform.
And and, it's, similar activities, as you, for example, see on the on the free megawatt platform where we have gone in a in a fairly quick time period from a 3 to now a power node of 3.6 megawatts. So so we see further potential there, to act actually use the same platform but get more, output power. And and that is really the preferred method for us as well when it comes to delivering a competitive product with a lower levelized cost of energy. Then on the effects, I will hand
Kindly. Well, what we have said and continue to say is we are as naturally hedge as we possibly can in 'sixteen, we had a very little impact from or translation impact from currency. Obviously, in 15, we had some tailwind in particular on the revenue and the it on the on the cost side. But we don't foresee any big translation impact at this point. And again, everything on the transactional side, we are either hedging or we try to be as naturally hedged as we possibly can.
Translation is nothing that we obviously can impact that will always as we account €40 that is what it is. But uh-uh transactional wise, uh-uh we don't foresee any big swings.
Okay. So then we'll take the last question.
Thank you. Our next question comes from Alok Capri from SocGen. Please go ahead. Your line is now open.
Hi. Thanks for taking my questions and congratulations for a pretty good quarter. Just a follow-up previously, just on on the margin side side of things. I mean, the lower end of the range or and the top end of the range, if you look at the revenue and the implied margin, the guidance that you have there, it calculates down to a 30% decrement margin, like like my colleagues said earlier, but, that would then imply that, is basically pure operating leverage with no benefits from any variable cost reductions, etcetera. Is that just a conservative view of the way you're you're you're sort of laying out the margins, or is it reflective of the fact that you might have to pass on pretty much all of your variable cost reductions down to the customers.
That's one sort of follow-up and I'll sort of layout my couple of other questions. Thanks.
Well, I mean, I think we have been, pretty consistent in, in, improving the margin and therefore kept a lot of the benefits for Vestas, which we also obviously use as an opportunity continue to invest in, in the products that are clearly been or very competitive. When you look at the margin range, the, I would say that we do obviously, the assessments, you know, if everything goes through well or if if if we have some headwinds, what is the likelihood in terms of both revenue and EBIT. And that is what we have done. It's nothing more dramatic. Than than that.
And I would also say when it comes to a range, we would always strive for the hiring, of the range, but obviously this is a guidance and we have given you you the range and we are at the beginning of the year. So we will see how it pans out but there's nothing dramatic. Uh-uh, it's regular business assessment that is weighted into our range mod guidance.
Fair enough. And my follow-up, the other two questions, just on the pricing, you sort of have said past as well and same for 4Q that you're seeing stable pricing trends. If I actually just look back at the last 2 or 3 years, you're right. I mean, the ASP remains in that sort of 0.9 to 1,000,000, sort of megawatt range. For the period, we've seen a big transition within the type of turbines that you're selling 2 Megawatt to 3 Megawatt.
I'm just sort of looking at your annual report. Anything in 2016, you say 2 thirds of the order intake was on the 3 Megawatt platform. That's far more efficient, as you said, 35 percent more energy production since since the launch. But still, the price on that platform, despite being such a big contributor to your orders, doesn't I mean, it doesn't it hasn't really moved your ASP on the order side. You basically would just to me that you're giving away most of the improvements, pretty much without being sort of compensated for it or alternatively the 2 megawatt is seeing a far more hefty pricing pressure.
Maybe I'm sort of not reading this right by but but you could sort of, you know, would be great if you could sort of comment on on on that front. It seems from the outside that that the pricing is actually far more adverse than than than stable?
Yeah. No. But of course, you're right. I mean, when I comment on it, I comment on the average pricing per megawatt or as as stable. And and, I I think, of course, also fair, as you say, that we and the rest of the industry, of course, has passed on to the market, a a very big part of the of the increased production that we get with more efficient machines.
And and I think actually that is positive because of course that is what makes wind more competitive, with other sources and therefore our ability to to grow the overall size of of the wind market. So I think that the question, has worked well for us and for for the industry. And and I must say I'm also very pleased with the the the development that we have done in the Estas when it comes to improving our margins both in absolute terms from the Estas point of view but also when I compare it to the competition. So Of course, it's always a balance to make sure that we try to maximize our our piece of the pie as well as that we have a competitive offering, compared to other turbine manufacturer, but also that wind continued to take a bit increasing share of the overall electricity market. I mean, long term that is the the key driver for for the growth in the market.
Further improvement of the competitiveness of of wind. And if we can do that with a combination of, more efficient technology and then on cost out and we can keep our fair share. I think that's an equation that that at least works for us.
Fair enough. So is it fair then to assume that the underlying sort of price decline on a like for like basis for a similar sort of machine of some of the variance is somewhere around the 3 or 4% range?
That I don't quite understand. How aggressive.
Fair enough. Maybe take it offline. Thanks. And just one final sort of question on the offshore side. We've sort of heard recently about Denmark sort of talking about ending the subsidy on offshore wind with the proposal apparently due to be tabled in the later part of the year.
Do you see this as a risk for, your offshore JV, given how strong you are in in in the Danish Offshore market also the risk that some of the other countries then could follow soon, especially coming on the back of some very steep sort of pricing for some of the offshore wind farms, that we've seen in the recent past.
I I I mean, I
I I think it's very positive that we start to see, considerably lower levelized across the Vienna also now from offshore, and I think that we have actually contributed to that to to a big extent because we develop a bigger turbine. And then And you have to remember that for offshore, the equation changed a little bit. The turbine is, about 50% or or maybe 6 percent or the total cost of an offshore project. So there is a lot of other, components in an offshore project that also has to be optimized in order to drive down the levelized cost. We are not the one on the top.
And and I I think, Vestas, or MHI, versus, I would say, and and also the competition in in offshore has contributed quite a lot of the changes we see now in levelized cost of energy with developing bigger turbines. So, I think, of course, like, in onshore, the industry will grow quicker, the less dependent you are on substrate. So that's positive. Then of course, as we with everything else, we need a stable policy over time. And then if we have that, we can we can drive the business in a good way.
We With that, I'm, we're out of time. So I would just like to thank you for your interest. Thank you for calling in. I'm sure I will see at least some of you, in the next few days. Thank you.