So, good morning, everyone. Thank you for calling in and, welcome to this, first quarter 2016, earnings call. As usual then, it's, May and Marai that will present the slides to you. So let's start first, the normal disclaimer slide and then, we go into the key highlights for the first quarter. I would say solid performance, with the inventory buildup from the expected BC 2016.
Of course, very encouraging to see the record high Q1 order intake of 2.4 gigawatts. Also leading to the highest level combined backlog for Vestas at €18,000,000,000. Improved earnings in the quarter, with an EBIT margin of 5.8%. 0.6% improvements year over year. And the negative cash flow impacted by net working capital and the acquisition we did in the quarter on the services.
So I will start to talk a bit about the water situation a bit more in detail, the markets, and then I will hand over to Mareka on the financials and come back and conclude then then we go to Q And A. So this is the time of the year when external consultants published their report on market share development in megawatts. The measure the the measures differs a little bit if it installation or grid connected or delivery. And therefore, of course, there are variations in these reports. From our point of view, it is encouraging to see that it confirms the view that we have that Viasat is retaining a strong position in the market and actually improve our market share year over year.
And Megawatt is of course important, but, for us, the main objective and, that we also express in our strategy and vision is, of course, based on revenue and, not megawatts. And here, on a revenue base, this, of course, also clearly confirms what we said before that we did, outperform the market during 2015 in revenue growth. Overall, regulatory environment, I must say not that much news in the quarter. One key event that we and the rest of the industry are, waiting for is the The IRS, guidelines on the PTC extension always, hard to predict when IRS will come out with this, but I would say, we think that it's likely to be, now in the second quarter of this year. Otherwise, as I said, not much news on the regulatory front.
We see markets moving to TEMDO systems. We see them that in Latin America, and we have we definitely also see that in the European markets. Overall in Europe, I would say that uh-uh what what drives a big part of the market is of course the renewable energy targets 2020 2030 that are in place. And within those targets, the market shifts to more tender based systems. We also see positive signals in Middle East And Africa where, renewable targets are being developed, and in some cases are in place in Middle East and Africa.
In Asia Pacific, not not much changes in the the China and India target plans but in the broader Asia Pacific region, we also now start to see markets putting in renewable energy targets in their local markets. So getting a bit more into the order intake. And as I said, of course, very satisfying with point 4 Gigawatt to 37% year over year increase. We also saw that the average sale in price declined very much impacted by the big one gigawatt order that we took in the quarter. So in numbers, orders were up 653 Megawatts, primarily due of course then to Norway, but also good development in the US and Germany.
The average selling price of order intake was 0.82 and as I see it impacted by the 1 gigawatt order in the quarter. You should remember as before that price per megawatt depends on a number of factors, turbine type, geography, scope, uniqueness of the offer and this is actually a good example of what we have been talking about before with a big order in the quarter. And of this size order, we can of course optimize due to scale, transport, closeness to the factory. Construction and also here use our latest power mode of 3.6 Megawatt at the fairly ideal site. Looking at the orders on a regional basis, then as you can see, again, of course, a good development in EMEA and actually also even without the 1 gigawatts, an increase in orders and come from a broad, based of countries.
In Americas, we were down 35%. This is on a year on year comparison very much due to lower activity level in Brazil. And, it also of course shows the lumpiness of orders As you know, about 2 weeks after we closed the quarter, we took a close to a 2 100 Megawatt order in the Brazilian market. Asia Pacific lower, overall and also low activity level in the quarter and especially comparison to last year where We had a significant order intake in China in the Q1. If I look at deliveries, So even if we saw regional differences, we saw a stable overall delivery situation And again, highlights the benefit of, our unique global reach.
Main improvements came from, Germany, Thailand, Sweden, and the UK. So as I said, done on delivery 33% in Americas, primarily due to US and Chile. Up 40% in EMEA and here it's really a broad mix of countries contributing to the growth. And again fairly stable development on a low level in Asia Pacific. So that leads us to the order backlog of 18,000,000,000 and of course, very encouraging, increased by 1,200,000,000 in the quarter.
The wind turbine side increased by 0.7000000000 and the service backlog increased by 0.5000000000. Your joint venture with Mitsubishi Heavy Industry for the offshore also on track. Two things, in the quarter to comment about. The ownership ratio will remain at 5050. And of course, it's a good, signal of the confidence of the current setup that now have been running for a couple of years.
You want to ensure it's busy ramping up the production, on the 8 Megawatt platform. The order backlog is solid at 1.2 Gigawatts showing a stable and and planable ramp up until 2019. First project of the 8 Megawatt will be Global Bank that, installation is expected to begin in the autumn of this year. And of course, preparation are also underway for the 2, 3 Megawatt, turbine project that is firm orders. So with that, I hand over to Maika.
Yes. Thank you, Anders. So if you look at the income statement, you can see that also what Anders have alluded to for Q1 is reflected in the in the P and L. You see a little bit of, a mix bag, which was also anticipated from our side. Revenue is down compared to last year, not as much, I would say that we anticipated, but still down according to plan.
If you look at the gross profit, we have managed to further improve that. In the quarter. Despite Q1 of last year being a good quarter, we have increased the gross profit, not only in absolute numbers, but also in percentage. That is primarily coming from a positive mix in the quarter. You can also see the negative would be fixed cost increasing by 10% in the quarter, not again according to plan.
And it's primarily in R&D, innovation, but also in distribution costs. So really a reflection of, the volume increase and the guidance that Anders has provided. EBIT before special items could then improve despite the slightly lower revenue in the quarter by 8% so a very good performance. And you can also see that our EBIT margin is up from 5 point 2 to 5.8 in Q1 of 'sixteen. And then just to highlight the accounting for the JV, you see the income from investments accounted for is negative 19.
And this is one thing that we have tried. To comment on earlier that you will see the depreciations coming in from the V 164 at the beginning of this year 'sixteen. If we look at the cost side and how we're leveraging, you can see that we compared to Q1 of last year is, are down in percentage 7.9, slightly up according to plan again in absolute number. But still very well capped, expenses or fixed capacity costs for the company also going forward. Just to reiterate that this is a key focus area and we continuously trying to be more efficient.
If you look at the service business, the there is an increase of 17% in revenue year over year Q1 So we are 299 in q1 of 16. That includes both, a valent and primarily upwind because that is a longer time frame. And you see of the increase compared to to last year, it's around 17,000,000 that comes from the 2 acquisitions. EBIT is still with stable margin, not as high as last year, but we deliver a 17 plus percent margin in the quarter. And as Anders showed you earlier, our backlog continues to be very strong for for the service business.
If we go to the balance sheet, I wouldn't say that there is a lot to comment on, but you see our equity position continues to be strong. Net debt continues to be negative. The only thing that we have consumed in the quarter is net working capital and it's primarily inventory. And I will come back to that. This is again according to plan.
And this is again what we I would like to reiterate. This is the beauty with a strong balance sheet that we can actually in a flexible and a cheap way, prepare for higher activity level in the coming months by consuming working capital in a quarter. You also see that we changed our solvency ratio in last quarter, but we are slightly exceeding that solvency ratio in q1ofthisyear. So we are at close to 31%. If you go to the change in net working capital, this is what I said earlier.
And if we look at the last three months consumption, you see that inventories is clearly up. And you can say see that it's to some extent, compensated by prepayments and payables. Payables is, again, as we have said, is not that we're we're not paying suppliers but we have a high activity level, and that's consequently why it it is up. You see the same development to a large extent for the last 12 months. If you look at the warranty provision and loss production factor, which is I think a solid receipt of our good quality work.
We continue the lost production factor below 2%. On a continuous basis. So obviously, it is paying up off the quality work we're doing throughout the company. You also see that we consume less than we provide for when it comes to provisions for the our warranty. Cash flow statement, cash flow from operating activities continues to improve, before, working capital, which is, a good, performance.
And, the change, negative change is really the net working capital. As I have said before, we are tying up more inventory. Cash flow from operating activities is consequently negative. And when you look at the investing activities, that is a reflection of the Availum, acquisition that we made in Q1. And that corresponds to 83,000,000.
So we are, from an operating basis, negative, a little bit more than 200,000,000. And then on of it, we have the acquisition, again, as planned for, avehillon in q, or March of this quarter, last quarter. And then you see cash flow for from financing activities is positive compared to negative last year, and that is really the refinancing of the bond. So if we look at the total investment for the company, we are investing more than last year, same quarter, And that is primarily again R and D and or capitalized R and D and the modes for for the blades. And here you see both in q4 of last year and q1 of this year, the the money spent on the 2 acquisitions, Upwind and Vailen.
The capital structure continues to be strong. So you see that we are we have actually increased our net debt to EBITDA. And you can see that our solvency ratio is slightly down compared to Q4. Again, as planned for. But we are above the target of 30%.
And then if you look at the return on invested capital, you see that we are at very high level 119%. And this is primarily a reflection of the earnings capability that we're proving in the quarter. And so we are actually increasing despite the efficiency on the balance sheet when it comes to working capital. By that, I'll leave it to you Anders.
Thank you, Maika. So Looking at the outlook for 2016, it's unchanged. So to, repeat it revenue of minimum 9,000,000,000. EBIT margin before special items of minimum 11%. Total investments, approximately €500,000,000 and a free cash flow of minimum €600,000,000.
And also unchanged on the service business when it comes to growth and stable margins. So before we then open up for Q And A, I also would like to remind you or invite you to our Capital Market Day, in on June 21st that we will, and we would be in London this year. So with that, we can open for
The first question comes from Christian Johansen from Danske Bank. Please go ahead. Your line is now open.
Yes. Thank you. My first question is regarding your project margins in the quarter. Can you elaborate on what drove the high level of project margins and also how this compares to the average budget margin of your backlog?
Well, this is And this sounds we have said it before, but it's very hard to say give you a general project margin. The only thing I can say when it comes to project margin and how we treat them is that we are very, very rigorous both for the service business as well as the turbine business that you go through a process. So we make sure that we have the profitable growth that we have stated in our strategy. So We had a very good month. We had a good mix in the quarter of different projects.
And whether this is a reflection of the coming quarters, it's hard for me to say because you can basically have, a big project tipping over into a quarter and dilute the picture or further improve the picture. So It is a good product mix. It's also a good mix of service business in the quarter and we are obviously happy with the margin that we have provided here in the quarter.
Okay. Fair enough. Then my second question is regarding the increase in in r and d cost. You described a higher innovation cost. Can you elaborate exactly what you mean and also how we should think about this going forward?
What Anders have said earlier is that obviously, at the size of the business, we are leveraging that by spending a little bit more on the innovation and that is something that we have said that we are prepared to do. And we are the technology leader in the industry and, we'll take that opportunity when we find that appropriate. And, so we have done here for 2016.
So we should expect a higher level in the coming quarters as well, the year
Overall, we are spending more on innovation, but it's, it's not extremely, extreme in any shape or form. It's, it's following the overall business. But we will, as I said, continue to invest in innovation.
Thank you. Our next question comes from the line of David Voss from Barclays. Please go ahead. Your line is now open.
Good morning on this. Good morning, Marika. I have a couple of questions, please. So first with regard to the service margins again, I think the comment around stable margins has been stable feature on your slides for a couple of years now. Can you just remind us, what the baseline is that you see a stability just for the record there.
And then also comment particularly on the impact of the 2 acquisitions in the service business, how have they weighed on the margin in q 1 and how do we see that developing in the rest of the year? And then I'll have another question.
Okay. So the the service margins, we, we are very confident on that we deliver stable margins in the service business, but we have also been fairly explicit on that. You will see fluctuations in the quarter. It is very, very hard to have a consistent service margin. And I think you saw that clearly in 2015 where we were bouncing up, and down in the quarter.
The 2 acquisitions, obviously, don't have the same profitability level as our own service business. And also to bear in mind that we will do depreciations on the PPA. So it will not be accretive from the beginning. And also capturing the synergies of the 2 acquisition will take some some time for us. So it will be more a reflection on the, on the revenue than on the profitability when it comes to the 2 two acquisitions.
Having said that, David, we are very happy with the performance of the 2 service business and how we've quickly have managed to integrate the people. And then obviously we are cautious in how we integrate and at what speed, we will integrate the 2 companies. So again, just to reiterate, it will have a positive impact on the revenue, but not necessarily on the on the margin for this year.
Okay. Yeah, that that's very clear from a, a conceptual point of view. I I think I couldn't, couldn't agree more with you on that, but I I would like to query you once more on the on what the baseline for the margins really is right now because if I look at last year, And for the full year, the margin was around 18%. If I x out all the provisions that you took in Q2 and Q3, I get to do almost 21, you know, 20.6 or so. That's a big difference, of course.
And we're just not sure where, where the baseline is. And then with the moving parts on PPA and, you know, the acquisition, etcetera. It's just very hard to to to get a view on on what we should be looking at here going forward.
And you will probably think I'm a bit blurry in in my answer because, I know where you're coming from, but I would say that we have been hoover hovering around the 17 to 21% margin. And even if it's gap in between, we consider that, that, bandwidth still to be a stable margin. And that's basically what we're working within.
Okay. Thank you very much. And then very quickly, if I may still, on the offshore business, You haven't, taken any orders there for, I think, 3 or 4 quarters now while Siemens is clearly, still doing so. Okay. Can you comment on on why that is that a deliberate strategy, is your backlog filled now to a certain degree?
That'd be very helpful.
Yeah. I I need to check when, your intention actually took their their latest order intake. I I don't think that we have not taken any orders in the last 2, 3 quarters. But I I need to check on that. Of course, I'm obviously not as close to that business as the Vestas businesses.
It is run by the joint venture, but I mean, to comment on the order situation, the the joint venture have the 1.2 gigawatts in in film orders. We have they have taken 2 fairly large three megawatt orders as we mentioned all in the presentation. Otherwise, it is very much on the on the 8th, Megawatt turbine and As I also commented, we are now in the startup phase or the joint venture is in the startup phase on manufacturing and deliver, these 8 megawatts turbines. And of course, in that phase, there is a limit on on how quick you can ramp it. So, we are very confident with the 1.2 gigawatts of orders that we and we are also very confident on on the timing and therefore the rollout of those orders which of course has to fit to the plan on starting up the production of the 8 megawatt.
And I must say also, a bit positively surprised of of the free May of what, offshore orders that also still are in the market.
Okay. Thank you very much on this.
Thank you. Our next question comes from Klau Salma from Carnegie. Please go ahead. Your line is now
Thank you. Yes. I have also a few questions. The first one is also about the product margins. Just to be sure, in Q1, you didn't have any projects being either, you know, very good or very, you know, bad executives.
No. That that's Craig Claus. We we, well, I see see where you're coming from now. Well, we are again, happy with the margins in in the quarter, but it is very, very hard. And I just, underline that to be very specific on margins in a quarter because if you have a project slipping over or a project coming in, in the court that could potentially change the whole picture.
So it's very hard for me to say that this is a reflection of the coming quarters. What you see in Q1. It is a good level. We are happy with the the improvement. What I can say as an overall comment, Kaus, is that I think that the the the overall, 2 is a reflection on that we're working on all parameters to further improve our performance, on the margin side.
Sure. Okay. And then just to this question, when you look at your fixed cost base, that level we saw in Q1, is that sustainable for rest of the year or should we expect any increase
Well, overall, the the fixed capacity cost will be in absolute numbers, a reflection of the activity level in the company. And what we have said And I think what we're proving with what we're delivering. Q1 is slower than than than the remainder of the year. Which is a normal pattern for us. So you you could see definitely changes in the fixed capacity cost.
But still overall in smaller in smaller size.
Very controlled. Yeah.
Okay. And then, my my second question goes to the order intake. Which again was very strong in the first quarter. Also, when we look at the smaller projects, maybe you give some more flavor to what you see in the market, what driving this service, online check?
Yeah. I mean, as I I said, I mean, we see a broad base the solid activity level. I I would say. I mean, it's it's in a in a manner, it's hard to pinpoint the any additional countries, but we see a good a good flow of order also in the q 1 that traditionally is uh-uh a bit lower also on the auto side. So It is fairly it is fairly broad based, I must say.
Okay. Thank you so much.
Thank you. Our next question comes from the line of Bynat Kithar from Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Hi, good morning, Anders and Marika. Thanks for taking my questions. I've got two questions first one is on on San Edison. I believe some in the market were worried about San Vincent's bankruptcy. You've already said that it should not have any material impact or may not have any impact at all.
And could you give us some color around what's happening? Why you feel so confident around it? What are your orders pending from San Edison or any other, framework agreements? So, you know, some color on that whole whole thing? And my question is regarding your June 21st Capital Markets Day.
Now you know, on that, could you give us some color sort of what prompted you to do that Capital Markets Day? Is it that you are seeing more activity levels that you to plan forward or, you know, what are sort of triggers that you had to do at Capital Markets Day? Thank you.
Okay. If I start with the with the sun, Edison, and Anders can can fill in. We don't have, we don't have, or if we have, we have very insignificant exposure towards san Edison because it's it's all guaranteed. We have the relevant guarantees for any exposure. And then, I think that, if some Edison have an impact on our future activities, in the US.
I mean, we have a 5 year PTC extension that obviously is very beneficial for us. So We don't see that as a as a as a big impact on the overall business for Vestas. I don't know if you have anything else I understand.
No. No. I I agree. I I as you say, I mean, we don't have any impact. We think that I mean, the projects and the ownership structure of the projects is is solid and and the projects that are all good will most likely go ahead, in a different shape or form, also when it comes to future project.
But that, of course, remains to be seen and and as normal, we will announced the Wallace when they are firm and and unconditional. On the Capital Markets Day, nothing dramatic. Of course, I hope you still will attend. So, we typically do, a Capital Markets Day every other year. So, it definitely time to do it.
And and our intention is, of course, to do a a general update on on our business, and and on our outlook for the business.
Can I probably just follow-up on a very small one? You mentioned the Sweden, sorry, the order in Finland to one gigawatt order. And and the pricing is lower, but, you know, obviously, you've got lower costs as well. Can we just assume that the margins would be similar on that order given the coastal color?
Yeah. So, it was in Norway, in fact, but, I can understand that the Scandinavian countries are almost the same. But, as I said, the the the margin depends of course on a number of different factors as I also described and and and the uniqueness of the the turbine to the specific site and I will not comment on margins in a specific project but I can of course, say that, this project passed through our normal, margin approval process. So it is in within the the expected margins that we have for the company. So nothing that went outside our normal process.
Thank you so much. Thank you. Our next question comes from the line of Patrick Stetterberg from Nordea. Please go ahead. Your line is now open.
Yes. Hello. A couple of questions from my side as well. I just wanted to, pick on up on the previous questions regarding the ASP trend. It is, clearly stated that this big Norwegian contract is is taking down the ASP in the quarter.
I I'm just wondering, is it due to the fact that the that the volume is so big in this contract, or is it due to the fact that the turbines are gonna be delivered in quite a distance future, which is going to be between 20182020. That is my first question.
Yeah. So, I mean, again, without going into specific of a single, project, also for customer and competitive reasons, It's of course so that the volume as such, is, one parameter that makes it's possible to optimize. You you can optimize the transportation. You can optimize the construction. It also happens to be a very good situated compared to our production facilities.
So of course, you can do a lot of optimization on pure volume at 1, at one project. The other thing that I talked about is, of course, the the turbine match to the site. And and in this case, we have a a power mode of our 3.45 megawatt turbine that can run that turbine up to 3.6. Megawatts and of course it's something as you know, that we always work on different power modes. And if you can match that very well to that specific site, you'll of course get also a big boost, from the specific turbine site to the specific turbine type to the site.
Okay. Thank you very clear. My second question is regarding to the service revenue. Could you split up how much the acquisitions was contributing in the first quarter and how much was, organic growth?
So the when you look at the comparison, it is 70, I think to be very precise, Patrick, it's 17.5. That is coming from from the 2 acquisition, 12a half, from, upwind and 5 from a valent. So that is the revenue part in in Q1 from the 2 acquisitions.
Okay. Thank you. And my last question, income from the joint venture, negative quarter. Is this the run rate we're gonna expect for the coming quarter or do you see any a bigger payment is gonna come in as well during 2016?
Well, that obviously depends on on the overall, activity level in the company for the coming quarters. But what I can say is that again, depreciations obviously for the V1 before will continue and they are, but as you can see on a higher level.
Okay. Thank you. That's all from my side. Thank you.
Our next question comes from the line of Sebastian Oval from Commerzbank. Please go ahead. Your line is now
Yeah. Good morning, everybody. Two questions also from my side, obviously. The first one is on your reference that you make in the report. To strong market demand in the country when it comes to Germany in particular.
Could you comment please on the full year expectation for the market, I. E, what installation volume do you see in 2006 seen more for the market rather than for yourselves to just get a better sense of where you will receive the market if it's going up, if it's going to be just stable or if it's going down. Yeah, piece, your answer on this one.
Yeah. No. I think as I, we said before, I I, we see a fairly stable market in Germany. So, a fairly stable on, the same levels as as last year as an overall market.
Okay. And that is also, predictions, so to speak, that you would also see them for 2017 and all, yeah, just reflecting then that the auction scheme is kicking in not before 2018. Is that basically what you have on mind?
No. I think that, of course, there are currently, proposals on auction and both sort of rules of the auction in itself and also the transition rules to the auction. So I think of course, that will, will or could have an an impact on the market short term when when things change but and I don't really have a forecast for 17. So I think that we have to to wait for clarity on those rules. But having said that, I I think when I look at the renewable energy targets for Germany.
If I look at it more average on a number of going forward. I I look at a fairly stable market.
Okay. Fair enough. And the other question is on the order intake sorry to get back to the on, if I just do the math, and that was to ignore the 1 gigawatt order from Norway. Is it fair to assume that pricing on the remaining orders has been on about the same level as last year is some, the €0.92,000,000 per megawatts?
I mean, without commenting too much again on specific project. I I would say that, if we take out that, we we continue to see a fairly stable price development, in a competitive market. So no changes from what I've, talked to overall, from previous quarters.
All right. Thank you very much.
Thank you. Our next question comes from the line of Dan Treville from Handelsbanken. Please go ahead. Your line is now open.
Yes. Thank you, and good morning. One question regarding the JV, you mentioned on us that, you will see Burbank coming on or delivers to broadband coming on the 2nd half. Will this mean that here in the short term or next quarter, there will be fairly limited transfer of risk we should expect a more or less similar, effect from from the Jamie?
I mean, of course, again, it it depends a lot on the activity levels, but of course, and again, I mean, they are a separate company. So So, I have a very hold time commenting on specific quarters for them, but, we will continue. They will continue to depreciate 8 megawatts and as you as you said, and as I said, the delivery there is expected in in the autumn. Then of course, there is a run rate business in the joint venture since before. But but I I will not really go in and comment on a separate company's different quarters.
Okay. Understandably. Then, on on the 2.5 gigawatt you were saying you have, you know, and I'm working on right now and I'm building up on on the inventory side, could you give some indication of how we should expect that delivered will let to be throughout the remaining quarters of this year and very front end loaded. How should we see the impact, so to say, in in coming quarters from that?
Well, you will see, the same pattern as you normally do. We we have a high activity level in the coming coming quarters and how that specifically will be divided. We cannot comment on, but you also know our guidance for the full year, which others have not changed. So it it means that it's gonna be a high activity level and that's what is is what we're preparing for with the the working capital and inventory levels.
Okay. Thank you. Thank you.
Thank you. Our next question comes from Klasquil from New Credit Markets. Please go ahead. Your line is now open.
Yes. Hello, Klaus Caitlin. I have two questions, please. The first one is, again, related to the service business. Could you just confirm whether there are any one offs in this quarter due to, yeah, the acquisitions and perhaps some integration costs That will be my my first question.
And secondly, honestly, you mentioned that you're still awaiting the IRS guidelines in the US is that your impression that that is holding back the order intake. So in other words, when this guideline is out, we could then expect the order intake from the US to pick up?
Well, if I if I start then with the with the service business, as I said earlier, yes, you will see some depreciation some costs for for, for integration. So and that is also what I look to do. That will be a pattern, into 2016. So you will see some additional costs for those 2 acquisitions.
Okay. But could you give us a number? Are we talking about 1,000,000 or what are we talking about
It's not we will not provide a number, but it's it's below double digit.
In integration cost?
Okay. Well, we are not commenting on any specific number on the on the integration cost. It will be If, as I said, in q 1, you didn't see, accretive performance from the 2 acquisitions due to integration costs and also depreciations.
Okay. Right. Oh, the IRS. I I I mean, I I it's, of course, very hard to to to say. I think it's, of course, a fair assumption, as you that you make that that, of course, the market and and, the customers are, are as anxiously waiting on the IRS clarifications as as we are.
And of course, the more clarity you get on that earlier, the more secure you are in your decision making on on projects going forward and therefore, of course, placing orders. So I I think, there is a very high activity level in the US market. There is a lot of discussion. So ongoing, but and I think it's a fair assumption to make that of course, as always, you want as much clarification of the rules as possible before you make the final decisions.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Sean McLoughlin from HSBC. Please go ahead. Your line is now open. Thank
you. 2 questions. Just circling back to the U. S. I'm trying to understand, are your customer Garding to get projects construction ready by the end of 2016 in order to qualify for the PTC before the first scale down?
Or do you get a sense that customers are more relaxed about booking orders through next year through 2018 did they still have 60%, 80% of the PTC? And secondly, a more general question around around pricing and auctions. I mean, we've seen very competitive bids for solar projects at auctions in, in LatAm, do you see this as a competitive threat? Do you see greater pressure in countries where capacity is being allocated?
Yeah. I mean, on your first question, so of course, I mean, of course, there is a benefit of getting the full PTC. So, of course, there is an interest to to, to, lock down projects on on the 100% level, if possible, and if projects are are mature. But that, of course, have to then be, weighted with more longer term project that and actually also the the continuous reduction in levelized cost of energy that we see all the time. So it is not a straight, yes, on our answer.
And and of course, it is, it is depends on the maturity of the project you have in the pipeline. And if they are mature enough, of course, it's likely that you you wanted to get them in on a 100 sent, PTC, but there are also projects that are less mature and maybe are stretching over more years. From a a pure timing point of view and then it's to look at the benefit of continued levelized cost of energy improvement, to see what is the most, attractive scenario. So I would say that there are all those discussions ongoing with customers in the US market but probably fair to assume that if you by pushing a little bit can get a 100% then of course that is a a desirable situation. On, on competitive, tendering, I think, I mean, it's nothing new.
We we say that in in many markets, as you say, in Latin America, we've seen it for quite some time in in South Africa. So we have a lot of of experience of that investors. They are quite often what you would call, technology neutral, both, from a renewable point of view, but actually also from a a fossil fuel point of view. Overall, I think it's a healthy development in the market and it's, of course, shows that renewable can can compete on equal terms as as fossil fuel. And, I also feel that, in most cases, wind and solar are compliment each other well.
Shouldn't forget that last year 20% of all new electricity generation being built was wind and still, and still, wind is only 4% of the mix. So I think there is a lot of opportunity, going forward. You will always find sites places where solar is more attractive. And you will find sites and places where wind is more attractive by by the nature of the the the natural resources that both of us rely on and and and you will actually find in many places where it's fairly complimentary where, where actually the wind is, is generated by temperature difference and not by, pressure system. So, yeah, you will find, in any, even in any given country, you will find sites that are more, suited to solar and sites that are definitely more suited to wind.
Super. Thanks. Thank you.
Our next question comes from the line of Mark Freshney from Credit Suisse. Please go ahead. Your line is now
Hello. I have two questions. The first one is following up on log in North America in the US. Are you seeing customers seek to delay projects, that affirm an unconditional and push them into 2017. And just also on your own experience developing turbines, you you clearly can't talk in-depth about the MHI Vestas JV and the operational gearing there and the increased amortization, But is it fair to say that the offshore business needs substantially more orders in order to cover the development costs of the 8 megawatt platform Thank you.
Now, let me start again, comment on on the Mitsubishi Vest that's, you want to answer me. The the the the plan that we put together for the joint venture we are the joint venture is following following that plan. And, so And that means both from a commercial point of view. So from an order point of view, from a technology point of view and from a rollout point of view. So the original, plan holds.
And I think as I have talked about before, the payment from, Mitsubishi Heavy Industry into the joint venture, were milestones payment that was triggered both by order intake, on expectation and on, technology milestones. And those milestones has been fulfilled and those payments has been done to the joint venture. So, it is on our original plan both when it comes to commercial activity and technology and rollout activity. This your second question was around the US. Yeah.
And and again, And if I if I go back to the PTC, I think fair to say, as I said before, that the the next milestone in, in sort of firming up the the decision making on on orders and therefore timing of orders and therefore roll out will to a large extent be dependent on on the they are IRS rules. And and, if they are as before, then you can, which I would say most people in the industry believe, then you can qualify again in 16 by 2 different means for rollouts in 'seventeen 'eighteen. And then you can qualify either as the safe harbor, which is, 5% of the the the project value purchased and deliver within 'sixteen, then you qualify for roll out, in 'seventeen, 'eighteen, or you can rely on the, continuous construction language. So the timing of both firming up the orders and the method that the customers then, rely on for the qualification will, to a large extent, be influenced by the IRS ruling.
Thank you for that. But just to follow-up, my point is that for 2016 orders, q, middle of the year, IRS confirmation is probably too late. A lot of the construction of the machine site preparation needs to be done now. So for orders that you expect to do in 2016, is there any risk at all that those orders could be deferred to 2017?
No. I I wouldn't say so. I I think that there is still plenty of time to do 5% and and start construction or started delivery of of a fairly low volume that then would enable a very big project.
Okay. Thank you.
Thank you. Our next question comes from the line of Hookman from Citigroup. Please go ahead. Your line is now open.
Hi, guys. Thanks for taking my question. My first question is on, the working capital situation. You guys mentioned that you have a lot of projects under completion. And my question would be, should we expect, inventories to be monetized in the second quarter?
And then also payables to pull back. Maybe you can provide us some, color on how you see working capital developing throughout the year.
Okay. We, we are not commenting or guiding for any specific working capital levels. What we have communicated is that this is a key focus area for us. And, we are Again, the the negative working capital is not a surprise. It was planned for, because of high activity level.
The high activity level that I'm referring to is for the remainder of the year. And as you know, that we are guiding for a high revenue. Obviously, that is pointing at a at a high activity level for for the remainder of the year. We are not talking about the specific quarter in terms of activity level. Do I feel confident on on the guidance?
Yes. I can just reiterate that. On the payable side, we are again. It's a relation to the overall activity level. So That is on a high level.
And, obviously with the activity level anticipated, it will continue to be that.
And then my second question is on your guidance policy. Can you comment on how frequently you assess this? And which metric you guys generally look at?
Okay. That's a different question. We are, we are doing regular forecasts. And, obviously, in those forecasts, we, we evaluate if we are continuously confident on what we have, guided for for the full year. And, as we are not changing the guidance, we are confident on the guidance that we have provided.
Thank you. Our next question comes from yacob Pedersen from Sidbank. Please go ahead. Your line is now open.
Hi. A couple of questions from my side. First of all, your view on the on the provisions, how low can you go on this? Do you had a very, very limited consumption of the warranty provisions for the past year? And my second question would be, concerning the impact of fluctuations in for example, the steel price, have you got any meaningful tailwind from those input costs in the quarter?
Okay. And on the provisions for a warranty, we actually did reduce the percentage level last year. This is we are at the level that we feel comfortable on. And remember, the provisions are based on on, obviously, the the turnover in a specific quarter. So you will never see an even spread of provisions throughout every quarter.
And, when you calculate the overall provisions for warranty, you, you look at the average type of, of contract. So we are confident that we are at the right level with the provisions that we are making. Obviously, we have slightly reduced it simply because quality overall is is on a improvement is throughout the company. And then if we go to steel prices, what we have made very clear to the market is that we don't have any headwind or tailwind when it comes to raw materials. So we don't feel that we have a great, exposure on on on steel.
Having said that, we obviously monitor the development on raw material in general because ultimately it would be the the customer that it could be beneficial for.
Okay. Thanks so much.
Thank you.
Thank you. Our next question comes from the line of Vasil Ahmed from SEB. Please go ahead. Your line is now open.
Yeah. Hi, Anderson. And, America, I have two questions from my side. Firstly, on the US, the window for taking orders under the old PVC, or what is that, and do you still expect some orders to receive in a an under the old PVC? That's the first question.
Sorry. I don't I don't know if I quite understood it. The old
Yeah. Yeah. I mean, I'm I'm thinking about the p not not the extension of the policy, but but under the regimes, orders which have maybe been safe harbored before the current PTC was extended.
Yeah. No. The I I would say that, I mean, of course, as usual, we we we announce all of when they are firm and and and unconditional and And we had, those kind of orders in Q1. We actually had a fairly good, stable order intake, in the US in Q1. So And then of course, we will see.
Okay. So we can still expect something in Q2?
That that remains to be seen. I mean, we haven't changed policy. We we announced orders when they affirm an an unconditional.
Okay, sure enough. 2nd question relating to the headcount development. I mean, your headcount is both year on year and, and the quarter on quarter. What should we expect new we'll be expecting for the coming quarters?
Yeah. You're absolutely right. And and of course, that is a reflection of, the increased delivery, that we have seen. And and it follows the pattern that we've seen also during last year with with a high delivery, level. Of course, we need to increase and this is as before to the, a very, very, very large extent, blue color worker for, delivery.
We also, of course, now in the quarter had some additional headcount from the acquisition as we had in Q4 then also for upwind.
Sure. Okay. That's all from my side. Thank you.
Last question, then please go ahead.
Thank you. The next question comes from Holjis Jose Regres from Exane BNP. Please go ahead. Your line is now open.
Yes. It's a Josera. Yes, actually, from Exane. Thanks very much. It's a couple of questions.
First one, a follow-up on the German market this year. You mentioned before, you see a stable market. And does this comment apply to your order to the order activity you see in the market or you referring to your actual installations this year? That's question number 1. And question number 2 is again on the profitability of the service segment.
To clarify the the impact of the acquisitions, but you also mentioned in the release, you you were hit but less by less favorable favorable mix. What does that mean exactly? And if if it's that related to any impact on the margin from, availability, what entities you are providing to your customers? Thanks very much. Yeah.
So, let me start then with you. I mean, if you look at, what we said in the order intake, we see a strong, development Q on Q. Driven by Norway, France, and Germany. So, Germany definitely, contributes positively on a q on q. On orders and actually, the picture on on delivery as well is that that Germany is doing well in Q1 compared to Q1 last year.
So, I think that also confirms what I said about that we see a stable market, in, in Germany.
And if we go to the service business, I think I've I did explain the this is the last question. Yes. I explained the impact from the 2 acquisitions. So, I will not well on that. But what we said on a favorable or overall the mix situation in a quarter could be actually that you have planned for a a a bigger repair that doesn't materialize in the quarter.
That means that you take the income, but not the cost. So that is the type of fluctuations that that you can see in a quarter. And that will be the case. And that's why I'm also talking about the spread in margins because as it's not a super big business, so small smaller cost in terms of being beneficial or the opposite will have an impact in a specific quarter. And that you will continue to see.
Okay. So with that, I would like to thank you for your interest. Thank you for calling in and then we end the call. Thank you.