Good morning, everyone. Thank you for calling in, and welcome to this full year 2015 and Q4 presentation. We start with the disclaimer statement and then move straight into the highlights of the year. I will say that a solid execution has produced strong financial and operational results on a high activity level globally. 2015 was, in several aspects, a record year for Vestas. On the financial and operational side, the guidance met or exceeded on revenue EUR 8.4 billion, EBIT margin 10.2%, and free cash flow slightly over EUR 1 billion. Also really encouraging that our profitability continues to improve, and we could actually record the highest-ever net profit for a full year. Also very encouraging is the highest-ever order intake of close to nine gigawatts, and the fact that we got orders from 34 countries on five continents.
We have a solid order backlog, EUR 16.8 billion. Also there, a good development. ROIC at a very high level, 117%. The board recommends a dividend of DKK 6.82 per share, very close to a payout ratio of 30%. We also will talk a bit about the strategy and the strategy execution. We've done a strategic review, concluded that we are firmly on track, and that the key objectives remain in place. The programs underneath those objectives have been updated to reflect both the strong execution and current market condition. I will start with the orders and a bit about the market situation. Marika will talk about the financials. I will come back with a brief strategy update, and we will end with summary, outlook, and Q&A.
Order intake at approximately 2.7 gigawatts, 18% year-on-year improvement. If we look at the quarter, the main contributor to the increase was the U.S., China, and Germany. The average selling price on order intake was 0.90 in the quarter. I would say a continued stable development, very much in line with what we saw during the other quarters. As I said also in the other quarters and in Q3, we will see variations between quarters depending on mix. Overall, in a competitive market, we continue to see a fairly stable price development. In Q4, we had a bit higher than normal order intake from China that typically has a lower scope content than other markets.
As I said, a very solid overall record high order intake of close to nine gigawatts, 37% increase. Also encouraging to see that all our regions deliver growth, leveraging the global reach that we have in Vestas. Also, the strategic markets pinpointed in the strategy are on track. A bit more in detail, substantial growth, of course, in Americas, both year-on-year and in the quarter, 50% and above. To a large extent driven by the U.S., but also for the full year and in the quarter, Brazil, from a low level, but a 14-fold increase in Brazil. It's very encouraging and actually good growth in most Latin American countries. We had a 9% growth for the full year, fairly broad-based, as I have also talked about in the quarters throughout the year.
Germany, Nordics, especially Finland, strong. Poland, France. A good solid, broad-based increase in orders. In the quarter, we were down year-on-year 17%, very much due to a large booking of Lake Turkana in the quarter a year ago. Also encouraging development on the other side in Asia-Pacific, of course, from a percentage point of view, extremely impressive, but it is from a low base. Encouraging is to see the year-on-year increase in China, which has been one of the focus markets for Vestas, and we see that both in the full year and in the quarter. I must say also, generally speaking, increased order booked in most Asia-Pacific markets. I talked about the strategic markets, and it is encouraging to see that for the full year, both China and Brazil are now in top five markets for Vestas when it comes to order intake.
Looking at delivery, up 20% year-on-year, close to 7.5 gigawatts, here, a good, strong performance in Americas and EMEA, while we had a lower development or decline in Asia-Pacific, basically due to the lower order intake in 2014. A bit more in detail then, very much following the order situation, very solid development in Americas. We are clearly gaining market share, but also a good activity level and increases in Latin America. In EMEA, up 8% for the full year and 31% in the quarter. Here it is markets such as Poland, a very strong delivery market during last year. Turkey, another good delivery market, Finland and Italy. When it comes to Q4, again, Poland sticks out on its strong delivery. As I said, Asia-Pacific down both full year, 16%, and in the quarter, very much due to the weaker order intake that we had in 2014.
With the situation in 2015, we of course hope to reverse that trend. To summarize, Vestas has a unique global reach, and we continue to leverage that in 2015. A well-balanced order intake across 34 countries in five continents. We have also added additional countries into our presence, and we are now present in 75 countries globally, leading to a strong combined backlog of EUR 16.8 billion, second-highest backlog that we've had in Vestas. The sequential development was an increase in the service backlog of EUR 0.7 billion, so now close to EUR 9 billion, and a decrease in the turbine backlog of EUR 0.3 billion and now close to EUR 8 billion. A very positive event by the end of last year was, of course, the multi-year PTC extension in the U.S.
This bodes well for a continued high activity level and a solid future for the wind energy and of course for Vestas in the important U.S. market. The activity levels continues to be high, and we expect it to stay that way. We took firm orders in 2015 of 3.1 and I must say I'm really pleased with our performance and our market share growth in the U.S. market. Looking a bit closer on the PTC extension, I'm sure you are aware of the rules. It's from 2015 to 2019, 2015 and 2016 with 100%, and then a deduction of 20% each year. What this table assumes then, which is still not clear or clarified, is that the installation period follows the same qualification as previous has been the case.
We, and I would say the rest of the industry, is currently waiting for IRS to clarify the rules around the installation process timing. Okay, a few words also then about the joint venture we have with Mitsubishi Heavy Industries for offshore wind. Well on track and a busy year overall for the joint venture. On the sales side, good traction and well received in the market with announced firm orders of approximately 1.2 gigawatts, further announced conditional orders of 450 megawatt. Also internally, from an operational point of view, very good progress. All milestone payments has been received by the joint venture that was triggered of both commercial and technical milestones. Manufacturing is ramping up and first deliveries then will happen this year to the Burbo Bank project extension. That's first delivery of the 8 megawatt, to be clear.
Of course, the 3 megawatt, the offshore continues to deliver. With that, I hand over to Marika to talk about the financials.
Thank you, Anders. We are, as you can hear from Anders, very consistent in delivering on our strategy that was stated and set in 2014. That is also clearly reflected in our financial, not only the P&L, but also the balance sheet. What you can see here, if we have a look at the full year, is that we are increasing our revenue by 22%. We have also improved the gross profit by 28% in absolute terms, and in margin from 17% to 17.9% for the full year. We continue to leveraging on the fixed cost. We'll also come back to how we are leveraging in the different quarters for the fixed capacity cost. I think an increase of only 4% in an environment where the revenue increase is 22% is a very good achievement. Consequently, we have a very high EBIT that improved by 54% to EUR 860.
Also, again, very well reflected in an EBIT margin of 10.2%, so 2.1% up compared to last year. To comment on the special items, you see a benefit of EUR 46 million. That is our facilities in the U.S., that because of the latest PTC extension, we wrote up as we're using also for the future, the facilities in the U.S. and have a clear path going forward. Income from investments account is the joint venture with MHI. You have a positive of EUR 34 million. That is primarily TOR of projects and a small loss, I think, of EUR 1 million in the joint venture as such. You see here a net profit improvement of 75%, and as Anders stated earlier, it's a record high level for Vestas.
If we then have a look at the Q4 numbers, I should say here as a general comment, it was a very good quarter from an execution point of view, and that is also, again, reflected in the revenue that increased by 23% in the quarter. Gross profit also grew by 38%, and that is mainly driven by, obviously, the higher revenue volume and also good project margins. We should also highlight here that in the margins, as Vestas has a legacy, we have written down EUR 50 million in our inventories. Also remember that for the full year, we have written down inventory in the service business. But the 50 you see here in the quarter is entirely on the inventory side for projects. We also here have the special items as the write-up of the facilities in the U.S. occurred in Q4.
Here in Q4, you also see a negative impact of EUR 10 million from the joint venture with Mitsubishi. In the quarter, again, we delivered EUR 298 million, an improvement of 54% on the net profit side. On the EBIT margin, you see an improvement by 3.1%, so really in the high territory. We are at 13.3% in the quarter. You also see the improvement on the gross margin, despite the write-down of EUR 50 million in the quarter. If we go to how we're leveraging on the fixed cost, you see we are increasing. We have a negative impact from the currency on the fixed capacity cost, but still, we are leveraging, and we are now down to 7.7% of revenue in fixed capacity costs. Really well controlled and well maintained despite the very high activity level, both in Q4 and for the full year 2015.
If we have a look at the service business, we are clearly delivering on our strategy here. We are improving year-over-year the revenue by 20%, and that is primarily driven by organic growth and also impact from currency. But organically, it has been a great improvement in the service business. Remember the UpWind Solutions acquisition that took place in the latter part of the year. It's only included with a very small part as the overall result was impacted only in a few days in December. EBIT continues at stable margins. We are now at 17.7% for the full year. As you recall, we did very high write-offs in the service business throughout 2015, but primarily a very high level in Q3 of EUR 19 million. We have also grown the service business backlog by EUR 700 million compared to Q3 in last year.
To comment on the balance sheet, we continue to have a very strong balance sheet that we, again, as we said previously, we're very happy with and have worked hard to achieve. You can see our net cash position is improving further compared to 2014, and is primarily driven by high cash flow also in 2015. net working capital improved, so we are clearly very efficient in this high activity environment. Our solvency ratio was actually reduced compared to 2014, down to 33.8%, compared to 34%, but still at a very good level. If we look at the change in net working capital, we see positive improvements for the full year, but also over the last quarter. It is for the full year, primarily driven by high payables and prepayments.
You see a slight offset in the inventories simply because the activity level has been very high and continue to be high. If you look at the changes over the last three months, you see improvement of EUR 600 million, and that is the regular flush out that you see in Q4. Again, it's been a very high activity level and a very flawless execution of Q4. If we continue to the warranty provision and the Lost Production Factor, this is the outcome of a very consistent work on the quality, and we continue to consume less than we provide for. We have the same methodology, so no changes, and the good quality is also reflecting in the Lost Production Factor that continues to be very stable below 2%. Cash flow.
If you look at the full year cash flow, we have achieved, and we have said that for numerous of quarters now, that you see that cash flow is, to a very large extent, driven by the result from our operating activities. You see a positive from the change in net working capital. If you look at the cash flow from investing activities, that also include the UpWind Solutions, and consequently lead to a free cash flow of over EUR 1 billion for the full year. The cash flow from financing activities is the share buyback program and also the dividend that we paid out in April of last year. If we have a look at the Q4 numbers on the cash flow, I would say it's the same pattern. You see a very good operating result, good changes in the working capital.
Here you have cash flow from investing activities. It is also, again, UpWind taking place in Q4 of last year. Free cash flow, very high in the quarter. Cash flow from financing activities is primarily the share buyback that took place in November of last year. If we have a look at the total investments that also have an impact on the cash flow as previously seen, we have separated the acquisition of UpWind. That is EUR 55 million of the EUR 425. It is an increase, but if you look at the percentage year-over-year, we are consistent at 4%. The vast majority of our investments is investments in molds for the blades as well as capitalized R&D. No changes in our investment pattern apart from the UpWind acquisition. Capital structure.
We continue to be very low on the net debt to EBITDA or in negative territory in the market where we are operating in. The solvency ratio, that is one target that we have changed. We had increased our target to 35%, but over the cycle, we think it's more appropriate to be in between 30% and 35%. That is the new target for solvency. If you look at the capital structure development in more details, you see our cash position end of 2015 compared to 2014. The development is, as we have stated earlier, primarily driven by the cash flow from our operations, so very efficient delivery of cash flow in the company.
If you look at the solvency ratio and the development thereunder, development is clearly driven by net profit, and that is to a certain extent, offset by working capital effect on the balance sheet. We have also distributed money to our shareholders. We deliver 33.8% compared to 34% last year. If we have a look at the capital allocation and what we have done, we did a share buyback in 2015 amounting to EUR 150 million. We are proposing a dividend payout based on the 2015 result of EUR 205. An increase of EUR 80 million. Total distribution in 2015 consequently is EUR 355 compared to EUR 116, based on the 2014 numbers. If we have a look at the return on invested capital, as Anders said earlier, it is very high territory. We are at 117%.
This is driven by our effectiveness on both the P&L as well as the balance sheet. We are really in the high territory, and remember over the cycle we have said that we will continue to deliver double-digit ROIC. By that, I leave the word to you, Anders.
Thank you, Marika. Let's go into talk a bit about the strategy update. Starting then with the overall environment that we see, I must say that from a policy and market environment overall, we see a positive picture. Clean energy investment, according to Bloomberg New Energy Finance, was at all-time high in 2015. Very much driven by positive policy development, but also the increased competitiveness and direct investments. Starting with the policy then, we see, of course, PTC extension is very positive, also the Clean Power Plan that was released last year. The COP 21, Paris Agreement, I must say, also for the longer term, probably have less of an impact in the mid-term, but for a longer term positive the fact that the majority of the countries have a renewable energy target in their plan.
China and India continue to be committed to installation of wind, have not really changed their plans. We also see that the market is moving to a more market-based system, auction and tender-based. We already have this in many markets, but we actually see that as a global trend, I think we have reported, for example, about the German plans during the year, last year. All in all, a positive long-term outlook in the market. At the same time, the cost of energy for wind continues to decline. That is both technological improvements, but also scale improvements and pure cost improvements. I think that this is very vital for the continued market development. For new installed wind power, we now see in many markets that it is on par with fossil fuel.
I think one clear indication of that is that wind is estimated to have accounted for approximately 20% of all new electricity generation during last year. The third block then is about investments, and we see major corporations like Google, IKEA, Apple, investing directly into wind. We also see investment houses like Goldman Sachs and BlackRock, that increasingly invest directly into wind parks. This is of course a number of different reasons, to power their own operation, but also for the attractiveness as a pure investment case. Looking at the long-term forecast then also, and this is an estimate by IEA about the new electricity generation build-up to 2040. What you can see here is that the majority of that new build is actually estimated to be renewable. Within the renewable space, wind is estimated to take the majority of those installation.
Actually this prediction is that by 2030, renewable will pass coal as the largest power source in the global market. A bit more detailed on the cost of energy for renewable and the competitiveness. Here we see this is again then from Bloomberg New Energy Finance. On a global scale, onshore wind is now competitive with fossil fuel, and that is actually also true then for many regions. I think it's the only region where you see a bit of a gap between coal and onshore wind is in Asia Pacific. Of course these numbers will vary regionally and country wise. Overall, I think a good representative picture of the increased competitiveness of wind.
Going into the strategy, and as I said, we maintain our vision to be the undisputed global wind leader, which means market leader in revenue, best in class margin, strongest brand, and continue to lowering the costs. We also maintain our mission on how to deliver and serve our customer. Our four key strategic initiatives also remain. I will, in the next slide, go a little bit more into detail on the execution as we see it. Starting then with our market strategy, leveraging our strong global presence and a good performance on our ambition to grow faster than the market in 2015. Order intake in 34 countries and presence in 75. Also from a level with order intake up 37% and delivery up 20%. I am convinced that we, during 2015, have grown faster than the market.
We have greatly improved our market share in the U.S. We are market leader in Europe, and we see year-on-year growth in China, India, Brazil. Our efforts to work closely with our customer, and of course to serve our customer, is also paying off. We do a yearly customer satisfaction study, and we have increased that index to 78, which is a good improvement year-on-year. Going forward, we will continue our growth strategies in both mature and emerging markets. We need early engagement as customers gets bigger and a bigger part of the pipe is locked in. We have plans on how we can engage earlier and closer with our customer, and then, of course, execute on the local plans that are in place.
Second objective on the service business, we have revised our growth ambition in the midterm from 30%-40% due to the solid performance that we have delivered and the outlook that we see. During 2015, we saw a 20% increase in revenue and service backlog up by close to EUR 2 billion, a very positive development. We also done strategic acquisition of UpWind during last year, and the valuation that is subject to final closing then in Q1. This provides additional revenue, of course, but also scale and service offering knowhow and also knowhow around third-party turbines, strengthening our overall fleet optimization business. During last year, we served a bit more than 5 gigawatts of third-party turbines. Looking ahead, focus will of course be to deliver on the new target on revenue growth.
To continue to leverage the scale, enhance the service offering, and of course now also integration of the two acquired companies. An absolute key enabler for us to execute on the strategy is to continue to reduce the Levelized Cost of Energy. It is very much about the competitiveness of our product portfolio, and we will continue R&D investment in that portfolio. During the year, we introduced the V136, about 10% improvement from the previous 3-megawatt platform. 2-megawatt platform also a very competitive platform. Almost 4 gigawatts sold in 2015, and really a flagship product in the U.S. market. During last year, we also did an upgrade of wind classes for the complete 3-megawatt platform, that if you look at it historically, actually now we have improved annual energy production between 18%-35% since introduction.
The focus will be continue to lower the Levelized Cost of Energy and, of course, working with the continuous improvement and new releases of our turbines. Operational excellence is the combined name of all the earning improvement programs that we are running in the company. Again, a good solid execution in the year with improvement in both EBIT on productivity level and the well-managed net working capital. Generating a strong cash flow. Going forward, we continue with our accelerated earnings program, with new targets of course. To counteract the natural increases we have with expansion in fixed cost, we continue the implementation of shared service centers, outsourcing, and site simplification program, working capital management, and overall leveraging the scale of the operation.
That leads me to the key differentiators that remains intact, that we leverage on and that we need to continue to leverage on to execute on our strategy. It is about global reach, the market presence. It's about technology and service leadership, to offer turbines in all wind classes across platforms with best-in-class quality and a world-class siting and forecasting capability. It is about scale, the simple fact that we have more people dedicated to wind than everyone else. Of course, we have the largest volume. We now also have an installed base of 74 gigawatts and 57 gigawatts under service. Our ambition for the midterm remain, as I said, to be the undisputed global wind leader, to be the market leader in revenue, bring wind on par with coal and gas, deliver best-in-class margin, and have the strongest brand.
Our midterm financial targets also remains with the exception or the update then that Marika talked about on the solvency ratio, in the range of 30%-35%. To summarize then, a little bit where we started, a strong eye on execution on our four key objectives and on our four P&L, for the full year. Continue then to improve our financial and operational performance throughout the year, evident in the solid order intake or the record high order intake, actually, a good increase in delivery for the second year. Improvement in EBIT, a good strong balance sheet, and a very high ROIC. That leaves me then to the outlook for this year. On the revenue side, minimum EUR 9 billion. On EBIT margin before special items, minimum 11%.
Total investment, and that is then including the planned acquisition for this year of approximately EUR 500 million, and the free cash flow also with the same inclusion of the acquisition for this year of minimum EUR 600 million. We also maintain our outlook on the service business, which is expected to continue to grow with stable margin. If I look a little bit further into the year, I think it's our assumption, it's fair to say that we continue to see a back-end loaded year. That is, of course, the normal pattern of our business. We see actually a fairly low activity level in Q1 and an activity level in Q1 that is lower than Q1 last year.
For the full year, we will have the normal back-end loading profile and those of you who follow us knows that we then expect to get into a very busy Q4 with the natural external environment like weather and wind and grid connection that can influence our results. We think it's a good strategy to start the year with the same guidance principle as before, and that is then the minimum guidance. With that, thank you very much, and then we move over to the Q&A.
Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. We kindly ask you to limit your questions to two questions at a time. The first question comes from the line of Kristian Johansen from Danske Bank. Please go ahead. Your line is open.
Yes, thank you. First, in terms of the solvency ratio, you lower your target and at the same time gave a guide for at least EUR 600 million in free cash flow, you are not launching a new share buyback. What is your thinking behind this decision?
Well, first of all, if I comment on the share buyback, we prefer the same methodology as we had last year. We rather base a share buyback on delivered results rather than anticipated result. When it comes to solvency ratio, the higher end remains, but we think it's more adequate for how we want to treat the balance sheet also going forward to be in the range of 30%-35% solvency, as that is a target also over the cycle. Well, that's basically the conclusion why we have made the amendment. I would also like to say, as we have been discussing this back and forth, that we are very happy with the very strong balance sheet that we have, and we also use the balance sheet to continue to invest in the strategy that we have for the company.
Okay, very clear. My second question, in connection with the Q3 results, you stated that you had 2 gigawatts in U.S. framework agreements. How should we think about these now? Are they still in play or were they canceled in connection with the 5-year PTC extension?
Yeah, that's correct. Roughly approximately 1.5 gigawatt remains out of those frame agreements that we talked about. The frames are obviously still there with our customers. Of course, it's also a complete new situation. With a 5-year extension, I think fair to say, we and probably the market and the customer had a lot of different scenarios. A 5-year extension was probably not one of the most likely scenarios for either us or the customer. We have to wait and see how they play out. I think it's fair to say that they are still there. There are still agreement with our customer, but of course, when and how we expect them to be realized, and how the whole market will change with this good, stable, midterm outlook, I think it's a bit hard to say.
Okay. Thank you very much.
The next question comes from the line of Puc Nguyen from Citigroup. Please go ahead. Your line is open.
Hi, it's Puc from Citi. Thanks for taking my question. The first one relates to your EBIT guidance of minimum 11%. Can you give us some color what assumption you are making around fixed costs and also the gross margin? Are you assuming a flat year-on-year gross margin to get to that minimum 11%?
Well, we are obviously not guiding on the margins, when it comes to gross margins or the fixed capacity cost. I think what we can say is that when we have set the guidance, we have used the same principle as previously, the same methodology. We are doing a best estimate on what we see as an activity level in the company. What I can say is obviously, the activity level and the volume have a positive impact on the gross margins. We have a healthy order backlog in terms of gross margins, and we continue to have the accelerated earnings program. Our aim is obviously to continue to be as efficient as we have been on the fixed capacity cost. The focus remains on being efficient overall on the P&L.
Okay, sure. Maybe just to follow up. When you came up with this guidance, did you use the same conservativeness of last year, or would you say this year you're more optimistic?
We have never been negative or overly optimistic. We base our guidance on the best assumptions that we have at the given point.
Okay, sure. My second question is on strategy. Obviously we know you have very high cash levels. You've made a few strategic acquisitions of service providers. Is it fair to assume you will continue down this path going forward, or would you also consider buying manufacturing capacity in markets where you're not present at the moment?
I think overall, as I said, our strategy is based on organic growth, that is the base of our strategy. As you also point out, we have done two good acquisition in the service business. If you look at the top line of them compared to our service business, they are definitely a positive effect, but of course, not substantial. They also have capabilities that we think fits very good with our strategy. Coming back to your main question, our strategy is, and will continue about organic growth. We are the market leader, of course, if we find opportunities in the market that we have seen during last year that we think brings value to Vestas, we are always prepared to look at them.
Okay. Thank you.
The next question comes from the line of Claus Almer from Carnegie. Please go ahead. Your line is now open.
Thank you. First of all, congratulations with a very strong report. My first question goes to the guidance. I know, Marika, you just said that you have never been over-optimistic or over negative, but the statement has also been in the past that you would prefer the underpromise, overdeliver strategy, so to speak. Is this still the case for 2016 guidance?
Let me start, of course, just echo what Marika is saying. We use the same principles as before. Marika and I are still here. We are all the same people as we have been before. Having said that, of course, we also have seen improvements in our internal processes within the company. We have a strong order intake during last year, actually, a record high order intake during last year. Of course, we have now two years of execution behind us. We have used exactly the same principles. It's still Anders and Marika here, so we haven't changed anything on how we look at it and how we estimate it.
That makes sense. My second question goes to the order intake, of course, I know you don't guide on order intake, but can you give some flavor to the cycle of U.S. orders in 2016, given the PTC extension? When should we expect these projects turning firm and unconditional? Maybe on top of that, how important is order intake in 2016 for your 2016 guidance?
If I start with your last question, of course, again, we have had a strong order intake during last year, of course, we have a good coverage. I will not give a %, but of course, we have a good coverage of orders for this year. Your question about U.S., I think it remains a little bit to be seen because, of course, currently, as I said before, the discussions with the customers are very intense for the moment because this is a new scenario. Again, a very, very positive scenario that we get a stable U.S. market, but nevertheless, a new scenario with the five-year extension of PTC. I think it's hard to forecast exactly how orders will pan out in the U.S.
Of course, it will be different from if it was just one year, where you would have seen the sort of normal rush and PTC components and all of those things. It will be a more normalized market. At the same time, a lot of the orders and a substantial part of available projects in the U.S., of course, still benefits from an early construction, because that's part of the financing of the different projects. We need a little bit more time to finish the discussions with our customers to get a clearer picture and hopefully also the IRS rules to be released. On an overall global market point of view, I think it's fair to say that, of course, last year, if you compare the growth 2014 to 2015, it was a very favorable overall market.
I think we and external analysts don't project the same year-on-year growth in the overall global market between 2015 and 2016 as we saw between 2014 and 2015.
Okay. Thank you so much.
The next question comes from the line of Sean McLoughlin from HSBC. Please go ahead. Your line is now open.
Good morning. Thanks for taking my questions. Firstly, on service, you've raised the top-line ambition, but you're talking about stable margins. Have service margins peaked? Secondly, on offshore, you have a successful year, first 8-megawatt order is coming through. How are you feeling about your potential for orders in 2016 in offshore? Thanks.
Yeah. It was probably a fairly bad line. I don't think I got everything, but let me try to I think the first question was around the service growth and margins. If I start with the growth there, the reason for us to stretching our ambition to 40% is a reflection of what we've done so far. I think it's important that we always have a stretched ambition. On the margin side, we definitely see stable margins on a yearly basis. I think it's fair to say that they have varied in between the quarters, as we have also commented on. If I look at this on a year basis, we see stable margins in services, and that is also what we guide for this year. I think on your questions on offshore, I'm sorry, it was a fairly bad line. I didn't quite get them.
When it comes to order book and more specific on offshore and the eight megawatt, those questions really have to be answered by the joint venture that is the standalone company or entity responsible for the offshore business.
Okay, thank you.
The next question comes from the line of Patrik Zetterberg from Nordea. Please go ahead, your line is now open.
Yes, good morning. I have two questions. The first question is relating to your free cash flow guidance for 2016. I am just wondering what kind of assumptions are you making to the net working capital progress during the year?
Well, we have guided for the cash flow. Not guiding for the net working capital, but what I can say is that you're seeing a tremendous good development on the net working capital. I think what you're asking me, will we be in the negative territory also for end 2016? We are continuing to deliver and working on the working capital. That is why we have been very consistent in continue to deliver on the activities that were in place. I personally see it's very difficult to improve from the levels we are at right now. If we can maintain, I think we should be very proud in this high activity level that we foresee for 2016.
I just have to follow up. You say you will be proud if you can maintain it, is it the goal to maintain the absolute level of working capital you're having now?
When I say maintain, it's really maintaining the activities. The absolute levels is hard to predict, it is really in very low territories now, end of 2015.
Okay. My second question is relating to your recent acquisitions and what kind of acquisition we should expect you making going forward. Just to get a sense, what kind of acquisitions do you want to make in 2016? Will it be solo within the service area, or could you look for business activities related to your project business as well?
Our strategy is based on organic growth, that is still our strategy and still the basis of our strategy. It hasn't really changed. As I said before, we of course follow the market. If we would find something that we feel brings value to Vestas, of course, we are prepared to take a look at that. I just want to emphasize, our strategy is about organic growth.
Okay. Thank you.
The next question comes from the line of David Vos from Barclays. Please go ahead. Your line is now open.
Yeah. Good morning, guys. A couple of questions from my side. If I look at Germany, it appears to me that you've lost a bit of share there. You're down 30% versus the market, 20% year-on-year. Can you just explain what's going on there? Is that a shift from high-speed wind to low-speed wind? Are there certain regions where you've experienced some permitting, for example? If you could also comment on what the backlog looks like in Germany. That would be question one.
Yeah. I don't agree with you. I don't feel that we have lost share in Germany. I think if you look at Germany overall, both from a delivery point of view and an order point of view. We knew that the overall market from a delivery point of view was going to be lower last year, which I think I talked about as well. You're right. In a given year or the given quarter, there will be regions with more permitting or less permitting. If you look at the turbine supply or strong parts of Germany, that will also differ a bit quarter to quarter. If I look at Germany as a market, I think we have to see a little bit what the final installation will be. I'm confident with our position and our market share in Germany.
We will not comment on the backlog on individual markets. If you look at the order intake on Germany and also in Q4 coming back up, I would say that you see a good development, and the book-to-bill will be above one.
Okay. That's clear. Secondly, on Brazil, you've booked quite a few orders in Q4, it seems. The country is kind of going into a tailspin. If nothing else, electricity demand is now firmly in negative territory. There's some question around the financing availability from the development bank there. All those things put together, from the outside, it could seem that it doesn't look great for Brazil for the coming years. In that light, it's quite surprising to see you kind of ramp up your orders again. I was just wondering if you could provide a little bit more color on what you're seeing on the ground there.
Yeah. First of all, I need to come back, I don't think Q4 was specifically Brazil heavy, it was 99 megawatts. If you look at the full year, we booked 300 something, almost 400 megawatts in Brazil, which I think is a good development. You are absolutely right. The macroeconomy in Brazil doesn't look too promising. If I look at the more midterm development in Brazil, if I look at the need for electricity generation in Brazil in the midterm and the competitiveness of wind, I must say I'm confident to be in that market. We have always said for both Brazil, India, and China, that our ambition was continued year-on-year improvement. We have also always said that we will not prioritize market share ahead of profitability when entering those markets.
I think we have followed those principles when we improved our situation in Brazil during last year.
Understood. Thanks very much for answering the questions.
The next question comes from the line of Vinay Kitab from Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Hi, good morning. Thanks for taking my questions, and congratulations on the good results. I have got three questions. The first one is on 2016 order outlook. From my understanding, talking to many investors, is that people want to have some confidence around the 2016 order outlook. I know you do not guide on 2016 orders, but it would be great if you could give us some color in terms of what are you seeing on the ground in terms of commercial activity. Do you feel you can maintain the very high levels of orders that you have seen in 2015? That is my first question. My second question is relating to costs and optimization. You have put on your slide 35 some comments around optimizing the cost base and outsourcing.
I just wanted to understand, do you have more opportunities within your cost base now that you have a better outlook in the U.S. or more visible outlook in the U.S.? Are there opportunities to optimize the cost base and improve your margins there? That's my second question. My third question is again relating to the U.S. During the discussion today, you've mentioned that things are still evolving in the U.S. You're discussing very intensively with your customers. You're waiting for the IRS rules and overall you see a positive environment in the U.S. I wanted to understand if it makes sense for Vestas around Q3 to hold some sort of capital markets or Investor Day, looking at the midterm outlook, once you've got more clarity in the U.S. Yeah, those are my three questions.
Okay. Thank you. Let me start with the last then. First of all, I must emphasize that I'm very positive and actually very pleased that we got a five-year PTC extension. That should straighten out a lot of question marks that we always have had around the U.S. market and different scenarios. That definitely makes our life a lot easier because, of course, we can now start to work with one scenario for the U.S. instead of two, three. The U.S. is, for any business, a substantial market, and for sure when it comes to electricity generation and renewable, also a substantial market. Most likely, globally the second biggest market overall.
On a midterm perspective that we now get a stable framework on PTC and actually also then have a Clean Power Plan that has the potential to so to speak, kick in at the end of the current PTC cycle. I must again say it's very, very positive for us. Vestas have invested in the U.S. We have a good manufacturing capability in the U.S., and if you look at the headcount increase that we've done during the last two years, a lot of that has gone into the U.S. market. What we are currently working through, and that we do very much together with our customer, is to understand the timing of the market in this new scenario and timing about the projects.
We definitely have a look at if it makes sense once we have gotten the clarification from IRS and once we have finished these dialogues that we intentionally have now to come back with a more detailed update. Currently, this happened late December, and I think it's fair to say that this was probably not the most likely scenario. It's actually more positive both for us and the customers. I think it's actually better that we take the time now when we have the time to work through it. On the operational cost base, again, I think we have said that consistently that, of course, with a high activity level, more than 30% increase in delivery the year before and then another 20% and actually a bit more on delivery this year.
Of course, we see parts of the organization where we have to increase our fixed cost, therefore to counteract that and have the total well-balanced, it's extremely important to also continue on the cost down efforts on the fixed cost. That is why we continue with the shared service center, where we continue with the outsourcing activities that we done. One good example is that we changed our blade manufacturing also to rely more on outsourcing. Those program is, of course, to counteract the natural increase that you will see, and you would need in other parts of the company. We will continue to work on that. The variable cost programs will also continue. We see good traction in them, and we will continue to drive them. Last question, I will not comment too much. We don't give any guidance on orders outlook.
We have a clear policy of announcing order. I can just echo what I said before. If I look at the external and our view of the overall market growth compared to last year-on-year, we see a stable market, but not the market that has the same kind of year-on-year growth that we saw during last year, but a stable market.
Thank you so much. That's really clear.
The next question comes from the line of Dan Togo from Handelsbanken. Please go ahead. Your line is now open.
Yes, good morning. A few questions from me as well. I would like to address what we touched on before regarding acquisitions, especially within services. Maybe you can give some color on what drives the decision to acquire companies within services. Is it geographical exposure? Is it technical skills, et cetera? Do you have any blank spots, so to say, to give an indication of where you need to, so to say, ramp up going forward? That's the first question.
Yeah. Now the two acquisitions we've done in the service space are fairly similar, so that they fit the same description, so to speak. One is strong in the U.S., the other one is strong then in Europe. They are ISPs. If you look at the ISP markets, there are not that many sizable ISP service companies. They tend to be either very local or fairly regional. The benefit that we see for Vestas is both, of course, the ongoing revenue and installed base, but it's also capabilities on the technical side, on the commercial side, being an independent ISP, but also then when it comes to fleet-wide service maintenance and management, which, of course, is a competence requirement from our side. We also feel that, of course, it has to fit us, so we have to perform and execute on the integration plan.
What we bring then is, of course, the scale of operation from the Vestas side and the scale of our service organization, the scale of our spare parts and so on. It's the combination there that makes them attractive acquisitions on the service part. If you look at the overall market, we actually see the service market also growing stable and showing a fairly good growth. It's also an attractive market to be in from a growth perspective.
Yes. Are there any blank spots in this market or for you right now? How does the pipeline look like out there in the marketplace? Is there abundance of companies for you to look at, or is it very few and select that is actually suitable for you?
There are very few blank spots if I compare us to the competition. We have 56 gigawatts under service, so we are fairly ahead when it comes to presence globally and gigawatt under service.
Okay, just onto the U.S. and the PTC extension here, the declining scale or the declining compensation in the PTC, will that change, so to say, the pattern of the orders we are going to see in the next few years here? I could imagine maybe more challenged areas would be pushed forward in order to get the higher PTC. What kind of product would you offer in such cases?
Again, I think it's hard to speculate now. I think let's wait for the market to conclude on this good news and also, of course, get clarification on the IRS rules.
Okay, when can we expect that? Is that within the next quarter, two quarters, or do we need to be more patient?
From our point of view, of course, as soon as possible, of course, together with the industry, that's what we are lobbying towards the IRS.
Okay, no doubt that U.S. order intake will be very back-end loaded in 2016. Is that how we should look at it?
As I said, we don't have an outlook for U.S. orders in 2016.
Sure. Okay. Thank you.
The next question comes from the line of Jakob Wegge-Larsen from Sydbank. Please go ahead. Your line is now open.
Yeah. Hi. Just a quick question. You guide for a higher CapEx level. Can you comment on the uses of the CapEx? Are you investing to facilitate growth that's reflected in your backlog? Is this really an investment in growth beyond what's already implied in your backlog of further growth ahead in the future?
Well, I think I said that on the CapEx, there's no change on how we have been forecasting compared to previously. It is investments in molds, which we need to do. Not only do we need to invest in new ones, but to meet the capacity, but also as we depreciate them fairly quickly, that will be on an ongoing basis if the activity level is high. We have also continued to capitalize on the R&D as we have done previously. On top of that, we have the acquisition of Availon in Q1, amounting to EUR 88 million. There's no change.
Okay. Maybe another question on pricing. You talk about quite stable pricing, you must have had some kind of tailwind from the US dollar strengthening. You are investing in your production set, have your competitors do the same in a market where the growth is probably not going to be as big in the coming years as it's just been. How do you view competition in the next quarters and the effect on pricing?
Well, we have guided for stable pricing. Previously, I think what Anders have been very clear on, also in previous quarters, is that, yes, we saw an impact from the currency. Going forward, we are not overall guiding for prices. I think what is most important for us is that we are satisfied with the projects that we have delivered so far, and that also shows in our margins. So I think it is managing cost, price, deliveries, and being overall effective in what we are delivering. That is what makes the difference in the result that we are delivering.
Okay. Thanks so much.
Thank you.
The next question comes from the line of Fazal Ahmed from SEB. Please go ahead. Your line is now open.
Hi, Anders and Marika. A few questions from my side, specifically on the margins. How would you like us to think about the Q4 project margins and maybe if you could relate it to your backlog? As far as I remember, you mentioned that Q3 project margins were very good, and it seemed that you're getting very substantial leverage on the volumes in Q4. How should we think about the project margins?
Again, we don't guide on the project margin. If you look at Q4 is a very good quarter from an execution point of view. Volumes obviously have an impact. We also have good projects in the quarter. We have continued the cost out on the products. All of that as a whole delivered a good Q4. What we can say and have commented on is that we're very happy with the order backlog. We're also using the same methodology in what we approve and not approve of, so there's no changes to that. We're happy with the backlog, but we don't comment on the levels in the backlog.
Sure, Marika. Maybe another question also relating to the margins and your margin guidance in 2016. The Accelerated Earnings Programs, how substantial will the benefits from that be in 2016? If you could try and give us some flavor on that.
I will be a little bit boring on that one as well. We have Accelerated Program that continues, and obviously improvements under that program will also follow the volumes. Cost is a very high focus and high on the agenda. Obviously with high activity level you can also see drawbacks if we are not 100% efficient in our deliveries in 2016. All in all, Accelerated Program has delivered and continue to deliver, and it's a high focus because remaining cost-conscious will be a clear competitive advantage in the market.
Okay. Just to follow up on the accelerated program. Will the full benefits of that program be in the bag in 2016, or will there also be additional benefits beyond that?
I'm sorry I don't think I heard the last one.
Yeah, I was just asking the benefits from accelerated earnings program. Will the full benefits from that be visible in 2016, or will you have additional benefits impacting beyond 2016?
Okay. The programs that we have run for a number of years, but I think to get more into that details, maybe we can discuss that at the meetings later.
Okay. Just one final question to Anders. Anders, if you could maybe elaborate about your ambitions for doing [audio distortion] energy.
Maybe give us some flavor on how and how much, and by which means, and if your ambitions for doing this [audio distortion] energy have changed during the last six to 12 months.
Sorry.
In all honesty, we can't hear you, so we can't really hear the question. If we can take those questions later when we meet, would be much appreciated.
Sure.
Thank you.
We kindly remind you, ladies and gentlemen, to limit your questions to two questions at a time. The next question comes from the line of Mark Freshney from Credit Suisse. Please go ahead. Your line is now open.
Good morning. I have a question on credit. When you work with your customers, very often you'll have to present business plans to banks and so forth. What are you seeing and what are your clients seeing on credit and availability of credit for turbines and the ability for those clients to get financing for those turbines?
Well, so far, as you know, we don't have any captive financing, so we have been successful in helping the customers with external financing. What I think is beneficial going forward is that overall, wind projects are very bankable. We also talk to banks that have abandoned certain sources of energy and therefore looking more and more into financing wind. I would say, for the wind industry as a whole, I see that there is a clear interest from the banks to finance the projects.
Okay, thank you.
Thank you.
The next question comes from the line of Shai Hill from Macquarie Securities. Please go ahead. Your line is now open.
Yes, thank you. Shai here from Macquarie. I just want to ask firstly about some of the assumptions behind your revenue growth guidance. You're guiding for a minimum 7% growth year-on-year. I appreciate the uncertainties you've talked about a lot, Anders, but I just wanted to probe a couple of things. You delivered 3 gigawatts in the U.S. in 2015. Do you think that you will do more than that in deliveries in 2016? I appreciate some customers might push out now, given things are more relaxed on the PTC, but you must have made an assumption to give us revenue guidance. Also in Europe, I note that the order inflow towards the end of last year was pretty strong. Markets like Poland, Germany, very meaningful for you in total revenues. Are we seeing suck in before we move to an auction system?
That is to say, do you expect another strong year of deliveries in Poland and Germany? My final question on something different. Strategically, you say that the pinnacle of your strategy is the wish to be the undisputed global wind leader. If Siemens and Gamesa merge, you won't be. Did you, Anders, this morning rule out, Bloomberg is saying you've definitively ruled out a bid for Gamesa in an interview this morning. Could you just clarify on this call, please, Anders, if that's the case? Have you ruled out a bid for Gamesa?
If I start with your first question on the guidance on revenue, it's, again, we have a record high order intake, close to nine gigawatts, during 2015. We have a very solid order backlog and, of course, the orders at hand and a certain assumption on orders to flow through as delivery in the year is the basis for our minimum revenue guidance. I think I talked a lot about the U.S. and how we see it, I will not go into the details there. On your strategic question, as I said, our strategy is about organic growth, and that remains. We have a clear ambition to be the wind leader, which we are today, and our definition of that is on revenue, because I think that's a good parameter to define it on. I will not speculate in the Siemens, Gamesa merger or no mergers.
I can comment on that once we know anything. I don't really know if there will be a merger or not, I can't really comment on that. Again, our strategy is about organic growth and as I said, being the market leader, if there is an opportunity in the market, as we have shown with the service acquisition, where we think it brings value to Vestas, we will sure look at it, the strategy is about organic growth.
I'm sorry to be boring, Anders, I just want to absolutely clarify, Bloomberg is quoting you as saying, "We will not bid for Gamesa." Did you make that quote this morning, please?
We have no intention of bidding for Gamesa.
Thank you very much.
The next question comes from the line of José Arroyas from Exane BNP. Please go ahead. Your line is now open.
Good morning, gentlemen. I had a couple of questions, both related to the U.S. market, I'm afraid. The first one is on the U.S. framework agreement. You mentioned that you still have an outstanding amount of 1.5 gigawatts. I'm still unclear with the new PTC what these orders can mean. Can they be delayed beyond 2016 now, or may they be canceled? Can you update us on the value of your outstanding orders with yieldcos, in particular with SunEdison? That's question number one.
Yeah. I think, again, if you look at last year, we took 3.1 gigawatts in the U.S. Half of that was within frame agreements, and half of that was outside the frame agreements. As I said, the frame agreements still exist. I will not go into how they look from a timing point of view, but there is definitely ample of time for the customer as well to decide. It is a very new market in the U.S. with the multi-year PTC. We are currently in close dialogue with our key customers in the U.S. on how they see the market pans out. If you look at last year, and actually also in 2014, I'm extremely pleased with our performance in the U.S. market.
I think we have clearly taken market share, that we today are a very relevant player in the U.S. market, and have a broad customer base, both where we have frame agreements with, and as we have shown last year, with half of the orders coming from customers without frame agreements, that we are comfortable with our situation in the U.S. I will not give more sort of precise estimate of order intake, either globally or specifically in the U.S.
Okay. That's for question number 1. Question number 2 is on the competitive environment in the U.S. We have heard over the past few weeks, several manufacturers relocating to the U.S. market, and that makes sense given the longer term visibility we may now have. We have heard about Suzlon, Acciona Energía may be opening a plant. We may even have a stronger Gamesa if Siemens and Gamesa eventually merge. How confident are you of keeping your current very high market share in the U.S.? Thank you.
I think it's a competitive market overall, actually in all geographies. I don't expect that to change significantly, will continue to be a competitive market. I think for the U.S., I can just repeat what I said. If I look at our current performance, if I look at the performance over the year, Vestas in the U.S. and the market share gains we've done, I'm really satisfied with our performance. Also, if you look at the manufacturing capability we have on the ground in the U.S., I'm also very confident in that.
Thank you.
The next question comes from the line of Klaus Keel from Nykredit Markets. Please go ahead. Your line is now open.
Yeah. Hello, Klaus Keel from Nykredit Markets. Two questions. First of all, could you help us a little bit about these one-offs that you have? Especially, I am thinking about Q4, because on slide number 14, you write something about a EUR 50 million write-down on inventory related to development and construction activities in prior years. Just to be absolutely clear, is that negative one-off included in your gross profit? Secondly, the write-up of the U.S. factory, is that the EUR 46 million that we can see under special items?
Yeah. It is a simple answer. You are right in both your assumptions.
Just to be absolutely clear then, the EBIT before special items is actually understated by EUR 50 million in Q4?
Yeah. Depends on how you want to see it, but obviously the EUR 50 million write-downs on the inventory has a negative impact on the gross margin.
Okay. Excellent.
Thank you.
My second question, that will be about the overall market outlook. Given what we're seeing with the oil price and the gas prices, et cetera, could you just give us a little bit of flavor of what kind of feedback you get from clients outside the U.S.? I'm not really interested in the U.S. What kind of feedback you got in Q4 and perhaps here in the beginning of 2016. Are they worried or are they not really concerned about that?
Overall, from a macro point of view, I guess it's no news to anyone that it's fairly turbulent times. Overall on the macro environment. Of course, part of that or a big reason for that is, of course, the low oil prices and the volatility of the oil prices. Of course, it's fair to say that, I think despite that volatility and those uncertainties on the macro environment that we already saw last year, that we deliver a very solid result. Of course, there is discussions in the overall energy sector on what impact this will have on economic growth, and in the end, of course, on electricity consumption in the current macro economy that we have.
Far, if I jump to the discussions we have with our traditional customers and so on, and a little bit back to what Marika is saying, we have not sort of seen that project has gone away from wind to oil, so to speak, or some of the pipeline that our customers are working on has moved out to gas instead of renewable or instead of wind. We haven't experienced that at all, and I think that's, of course, also quite evident in our orders growth. Having said that, from a macro point of view, the oil price's impact on overall macro development is, of course, there. From a midterm or short-term point of view, I would say that we haven't seen a big or any impact at all. Okay, I think we are last question.
Yes, the last question will come from the line of Casper Blom from ABG. Please go ahead, your line is now open.
Thanks a lot. Lots of questions today, just a little bit of follow-up, thanks. Anders, I think you mentioned that you were expecting a relatively low activity in Q1 with the 2016 being back-end loaded. Could you just clarify that low activity in Q1? Are you referring to your deliveries or to orders? That's one thing.
Yeah, I'm referring to delivery. We see a low delivery level in Q1 compared to last year.
Thank you. Secondly, I understand that you cannot comment on the Gamesa Siemens speculation, maybe you could give a little bit of flavor about your general thinking about consolidation in the industry. Thank you.
Yeah, as I said before, it's a competitive industry. I think that we are coming from a situation with quite a lot of players, some of them very local, some of them a bit regional, and some of them, or very few of them, truly global. I think it is a natural development in the industry that we see consolidation where more local type of players try to combine. I think that is probably healthy that the industry is consolidating. Yeah, it's something that, of course, we monitor closely. From a Vestas point of view, again, we have, I would argue, the best global reach of any company. We also have the widest product portfolio in both the 2 and the 3 and the 8 megawatt platform. I'm confident with our position.
Excellent. Thanks a lot.
Very much, that was then the last question. Again, thank you so much for your interest and you calling in. Thank you.