So, good morning, everyone, and welcome to this third quarter 2015, earning call. As usual, then it's me, I'm the owner here and the OC for So the same procedure as normal. So let get straight into the key highlights for the quarter, a high activity level and a good solid quarter with improvement in both the financial and operational performance. Earnings continue to improve. Air bit before special items at 10.9 percent, up almost 2% year on year.
The backlog also continues at a high level. See $4,400,000,000, a well managed P and L and also a well well managed balance sheet. Means that the ROIC continued with the upward trend and in the quarter was 71%. We now have better visibility for the reminder of the year and we have increased the guidance on revenue, EBIT margin and free cash flow. We have also, decided to adjust the capital structure and, therefore, launched, share buyback program on a €150,000,000.
As usually, and I will talk about the orders and the markets, Maker will talk out the financials and, we are and I will come back on the summary and outlook and then we have the Q and A. Starting with the regulatory environment, I would say overall remains positive and favorable for renewable. In the Americas, of course, timing of PTC is, an important milestone. I would say that we and the rest of the industry, expect this to be considered by the Congress late this year. So in Q4 and probably towards the end of Q4.
Looking at the May, the trend continues moving from a feed in tariff to auction systems, a little bit different timings in different countries, but trend is is definitely there. Germany are working on, the time schedule and also actually on clarifying the rules so there is a smooth handover in between the current system and the new system. In the U. K, we are also seeing that the government has proposed to extend the grace period for the renewable obligation So that of course gives also some more certainty into the UK market. Southern Europe where we've seen very low activities and continue to see very low activity.
We see some positive seeing a Spain, for example, where a new power auction is planned towards the end of the year. In Asia Pacific, I would say not much changes since, we talked last quarter still, good support, for renewables from the 2 main markets, China, in India, but also actually from many smaller markets in Asia Pacific. And of course, the talks between China and US overall of, limiting the CO2, CO2, is a positive for the overall regulatory environment. Looking at the order intake then, it was 1.5 gigawatts in the quarter, a 29% increase year on year. And we also saw an uptick in in the price per Megawatt, mainly due to mix in the quarter to 0.96.
So orders in the quarter was 338 Megawatts higher than the same quarter last year. U. S, Germany, Finland, France, and Thailand were in absolute terms, in that order, the main contributor for the increase If you look at the average selling price, as I said, we saw an uptick in the quarter I would say overall prices remains stable in a competitive market. And the uptick sequentially is mainly due to mix and of course if you compare year on year you also have a certain currency talk about the orders then and looking at the global picture First of all, very satisfied that we see a growth in order intake in all regions across Vesta's large footprint. 9 months, we're up 46% year on year.
So a very good development on orders. America's up 61% on 9 months 20 in the quarter. Overall strong performance from the U. S, but also a very good growth actually in Latin America markets like Brazil, Kashila and in the quarter also in Uruguay. In EMEA, we also see a positive development both 9 months, 27% in quarter 5 percent, fairly well spread activity levels, I would say, but driven Nordics, Germany, offshore then I talk about the free megawatt for the offshore platform Poland and France and see him a lot then looking at the third quarter.
Asia Pacific also good growth of course from a lower volume. So, percentage wise very high. But encouraging to see that for the 9 months we see improvements and they are primarily driven by China Thailand and India and also in the Q3 from a lower level last year increased activity level investors. Looking at deliveries then, starting with 9 months also up 26% total 4.8 gigawatts. Again, a strong performance in delivery from the U.
S, but also I would say growth in Asia Pacific and a stable, Europe, Middle East and Africa. The delivery follow of course very much the order picture. We see a strong performance in the in the U. S. But also in Latin America.
Both 9 months and in the quarter. In EMEA, we've seen a decline in delivery in Germany this year compared to last year as anticipated, but we also see that we have many other mark that actually makes up for that decline. So, many markets actually has a very positive trend in in EMEA. And in the quarter, that contribution basically came from Poland, Italy, and and Jordan. In Asia Pacific, again, smaller numbers, but a good improvement for 9 months and in the quarter a very low activity level and of course that could happen when you have less projects that you have a quarter with less project activity.
As I said, a strong backlog, 1,000,000,000 and equal size between Wind turbines and services, sequentially then a decline in the turbine backlog of 0.6 and an increase in the service of 1,000,000,000. U. S. Market and an update on where we are on the master supply agreement, started out year with a potential of up 2, 3 gigawatts in most of the supply agreement. Orders here today it is 2.2 gigawatts and the split is, under a master supply agreement, 45% and outside 55%.
That leaves a potential of up to approximately 2 gigawatts, in most of supply should of course also remember, as I talked about before, that projects are traded in the market between customers and therefore also be traded between customer that we have a master supply agreement with and customers that we don't. Also evident if you look at year to date or take. In the quarter, we have also further strengthened our broad product portfolio We talked about that before, Vestas, a key differentiating factor for Vestas, and the reason for our global reach is that we have a strong 2 Megawatt and a strong 3 Megawatt platform in the quarter. We have announced our new V136, 3.45 Megawatts, 3 Megawatt platform that will reduce the annual production by approximately 10% compared to previous platform, very well suited for low wind sites and also not just more efficient when it comes to energy production, but also the possibility to open up new markets. Again, built on our well proven three megawatt platform that we have installed close to 7 gigawatts across 20 seven countries.
Also a short update on offshore, or your joint venture with Mitsubishi have industry. We have offshore, I should say, have now received all milestones payment that means 300,000,000 all in all. If you recall, the milestone payment was the plan when we set up the joint venture and the triggers for the payment are a mix between technical milestones and commercial milestones. So this is of course, very satisfying that we say that the joint venture is on track and that those milestones has been fulfilled and the resulting payment now has been received by the joint venture. Looking at the order situation, the the joint venture has announced film orders of 846 megawatts and also announced conditional orders of 7.80 megawatts.
So I would say we're from an order point of view, the joint venture is, off to a good start. If you look at the 3 Megawatt platform offshore projects, you see here some examples of projects that has been completed. And also new orders on the framework platform has been taken. For example, the ramp beyond 400 Megawatt project that was taken last quarter and also the noble wind project. So also the frame maker with part of the business continues in the joint venture.
So with that, I hand over to Marika to go through the financials.
Thank you, Anders. And obviously, the positive story well reflected in the P and L. You see an increase of the revenue, and consequently, the activity level of the company of 17 percent. That generates a gross profit of 389 in the quarter. So a 20 2% increase compared to last year.
And that is primarily driven by the revenue increase that you see, but also various mix in the quarter. On the revenue side, the total translation impact is around 150,000,000 basis. And the gross profit I should also mention is, obviously reflecting the 19,000,000 of write up write offs in the obsolete inventory, but still very healthy underlying margins overall for test does. If you look at the fixed capacity cost, you see a slight increase compared to last year. But we are at very stable levels also when it comes to the fixed capacity cost.
And we have another slide that show you more about the outcome of that. EBIT is 2.32%. So 42% increase compared to last year, and that generates an EBIT margin of 10.9% in the quarter compared to 9% last year. Net profits is more than doubled. To 206.
So 102% increase also here quarter over quarter. So overall, a very good performance and good earnings in the quarter. If we look at the net fixed capacity cost, which has been a big focus and continue to be a big focus for us and that's also what we see now is really the leveraging effect of the cost cuts that were made previously. And we are now down to a level of 8.1 percent. So we're certainly leveraging the volume that the volume increase that we see right now.
And that is compared to 9.9% last year. So a very satisfactory path on the fixed capacity cost. If you look at the service business, we're well underway to reaching our midterm targets of an increase of 30% in the revenue and you see quarter over quarter, you see 19% increase. So the quarter generates 280. You have translation impact also on the service business and that's in the order of magnitude 10 and to be very specific, 11,000,000.
The service revenue, or rather the the margin was impacted by the write off, as I said earlier. So you had a 9019,000,000 write of obsolete inventory. This is nothing we do on a regular basis, but it can occur randomly in the quarter. But is nothing underlying that we're worried about. We still see a very healthy development in the service business.
And the service backlog is also at a very high level as Andres alluded to earlier. And also in that backlog quarter over quarter, you have close to 1,000,000 of translation impact. The balance sheets, which is slide is still very healthy. I will not talk about the equity. As you know, we in Q3, Q1 rather, of last year did raise the equity.
We see a very healthy development also on the in capital. And and when I say healthy, it's all planned for because of high activity level anticipated in Q4. Solvency ratio is approaching 34%. And you also see the development of the net debt. If we go to the change in net working capital and here you see the change over the last, 12 months.
So I would say that we said what we said in the beginning of the year is we see that all the efforts that we made to improve the net working capital are still having a big impact. But we also see that it's becoming more and more difficult to further improve as it is still as it is at such a satisfactory level despite the high activity. Over the last three months, you see a negative impact as, again, planned for and is primarily on inventory and receivables where we see the increases. You're also on the net working cap total in the quarter have around 80000000 of currency impact. And if we go to the warranty provision, And the lost production factor, as we said earlier, this is certainly a proof of the quality effort that we made in the company is continues to have a big impact.
And then when we provide for warranty, it's based on the revenue in the specific percent of provisioning but in the quarter you have a 2.1% in Q3 and that's because of reclassification So, the underlying remains the same. We have made no changes to that. And if you look at the lost production factor, that's continues at a very satisfactory level below 2%. So no change in that performance. Cash flow statement, and I would like to say here that you, it's totally stripped from currency impacts.
So this is, again, we're very happy to see the cash flow that is generated from earnings. And we have a very few or no one timers in a cash flow. So it's a pure cash flow and we managed to generate 1,000,000 in the quarter. So again, a very good performance as you can see. The total investments have increased as planned 20 percent quarter over quarter.
So we are in Q3 of this year spending 79,000,000 and no changes in where we spend the money. We spend the money on the capitalized R and D. And also investing in the molds for the capacity need that we see right now. Capital structure. And we have today, as you know, launched a buyback program, but capital structure and the long term targets we have is to be net debt to EBITDA below one time.
Obviously, in this part of the cycle, we're at the very positive levels. Solvency ratio, we have also a midterm, long term target of 35 were approaching 34 in the quarter. So overall, the long term capital structure targets are well underway. The share buyback program, as I alluded to earlier, we have launched a program as of today and we have the intention to buy back 150 1,000,000 worth of share program. And the purpose of this program is obviously that we are adjusting the capital structure as to no seek it, we have, a good net cash position on the balance sheet.
We, are not committing to any frequency in the share buyback program. But having said that, we're also continuing to invest in our mid term strategy. So that is suddenly the priority from our side. And the dividend policy has not been impacted or affected by us issuing the share buyback program in 2015. Capital and here we clearly see the impact of the improved earnings as we've seen also in the previous quarters, but we factory levels considering the high activity level that we have in the company.
So earnings and balance sheets are well controlled. By that, I'll leave it to Anders.
Thank you, Marika. So, let's go to the summary and outlook. So, I would say, of course, we are very satisfied with the quarter, a good execution and a strong improvement in most parameters. If I look link it a bit to our 4th strategic objectives starting with the market, as I said, we are experienced growth in orders in all our regions and we've taken orders in in 31 markets across five continents, for the 1st 9 months and increase 46%. In the quarter 26% or in the quarter, as I said before, also a good development On deliveries, we have a high activity level.
We increased deliveries last year considerably and this year for the 1st 9 month deliveries up 26% and in the quarter, actually, up 15%. So all in all, confident with the position we have in the market and, and of course, that is extremely important. Looking at the service business, we are growing the revenue this quarter 19% year over year. Last the quarter 20 percent is also a good development and we're on track on our mid term target. And we also saw a backlog increase in the quarter.
On the competitiveness and of course the reduction on levelized cost of energy, we also see good development in the quarter we have released, all the 136, announced all the 136 turbine and And again, I I'm very satisfied with the the broad portfolio. We have on both 2 and 3 Megawatt turbines. We will continue to invest in both our platforms moving forward. On operational excellence, which is about improved earnings capability clearly have delivered in the quarter with an EBIT of 10.9% and ROC of 71. All in all, we have to continue to leverage our key, 3 key advantages the global reach investors, now present in 74 Countries, the technology and service leadership, And last but not least, the scale, we have now passed the 71 gigawatts in the installed base and of course, it's also the scale in purchasing and simply a number of people dedicated to the wind industry.
Looking at the rest of the year and the upgraded outlook. So as I said before, we now have a bit of visibility for the rest of the year. We expect Q4 as usual to be a busy quarter but we also expect to have normally look at in a 4th quarter. So on revenue side, we expect to be between 8,000,000,001,500,000,000 service businesses expect to continue to grow our EBIT margin before special items between 9% 10% and stable margins in the service business total investment, we keep at approximately SEK 350,000,000 and on free cash flow, we expects to be between 1000000000 and 1,000,000,000. And the dividend policy remains as before.
So with that, of course, first of all, thank you all for your interest and call in and then we go over to the
1 on your telephone keypad and wait for your name to be announced. Our first question comes from the line of Christian Johansen from Danske Bank. Please go ahead.
Thank you. My first question is regarding your assumptions for the updated free cash flow guidance. Do you include any effect from a possible PTC extension and here I'm costs thinking of potential prepayments for new framework agreements? And secondly, do you include any effect from a potential sale of your headquarter in your free cash flow
Oh, okay. I didn't hear. Can you please repeat the last question, Christian?
Yes. It was regarding, if effect from the PDC extension is included in free cash flow guidance and a potential effect from the sale of a quarter?
Yes. So I would say no on both parameters. When we anticipate the cash flow It's with what we know now and the same with any sale of facilities or similar. So both are excluded from the guided cash flow. Okay.
That's very clear. Then my second question, if I do a bit of math on your free cash flow guidance and your share buyback and dividend payment this year, I I get that you should end the year with a net cash position between roughly 1.9 and €2,200,000,000. Is this the level we should expect you to be comfortable with going forward as well?
Well, I will give you a very generic answer to that one. We are very sad side with the with the levels we are at. And we have now adjusted the capital structure Having said that, we will also continue to invest in the midterm strategy that we have.
Okay. Well, then maybe a follow-up on that one. You state that you plan to build a blade factory in India. What's the cost and timeline of that?
Yeah, that will be next year primarily. I mean, cost will be roughly normal for blade factory somewhere in between 50 something rough roughly around 50,000,000. So, that's the plan.
Okay. Thank you. That was all for
me. Thank
you. Our next question comes from the line of Klaus Alma from Carnegie. Please go ahead.
Thank you. Yeah, also a few questions from my side. The full year guidance or the new press full year guidance, does that include any material production issues or other extra costs in Q4?
I mean, when we when we give an estimate of the overall result, obviously, we're not expecting it to be a free ride. But then again, are we exact in the issues we might have you're I mean, you never know, but this is the best estimate that we have for this point and it includes that not everything will be smooth.
Right. Because when you look at incremental margin, especially in the higher end of your guidance range, Lead in mind sounds a bit low. I would I would argue at least.
Yeah. And as I said, Claus, it is a best estimate for with what we know now. And then obviously we're striving to do the best we can. But this is the best estimate.
Okay. And then my second question goes to, the U. S. Frame agreements, these 2 gigawatts, outstanding, What should we think about those contracts? Could they be converted to firm orders in 2015 or the more PDC dependent
No. I I mean, I would say the general nothing has changed. I mean, they can become the the potential is there. Definitely US team is working hard as normal especially this time of the year. I mean, the the I would say timing probably of course, this year, but it could also very well be, next year, where the customer shows to to convert the frame agreements to firm an unconditional order.
And of course, it's it's very hard to know exactly when the customers will do that and to what extent they will do it. So nothing has really changed since a quarter ago. I mean, it is it is the frame agreement. It is a potential. Most likely timing is during this year and the beginning of next year if you want to fit them into the current PTC cycle if we get a PTC decision towards the end of the year, of course, things can change a bit.
But that is of course we are very in a close dialogue with with the customer in the US and and when things gets firm and, I'm, as normal, then we will come back and announce them.
Sure. Okay. And then just a final question. Your fixed cost base, you have this slide showing the $640,000,000 on a 12 month rolling basis. Is that the ongoing rate or how should we think about that going forward?
I mean, obviously, we have had very little increase in the fixed capacity cost despite the very high activity level. And we have also had a negative impact from the U. S. Dollar from a translation point of view on the fixed capacity cost. But I mean, we're not committing to any level because obviously you have to adjust if the activity level is very high.
But we are at the satisfactory level for the rolling 12 months.
Thank
you. Our next question comes from the line of Patrick Satterberg from Nordea.
Yes. Hello. A couple of questions from my side as well. The first one is related to your, your project division in the third quarter. Obviously some good margins in this business.
Could you usually say some time that projects you have been executed on a quarter, they have been having an above average project margin or a normalized project margin or below how has been in this quarter?
Well, it has been, a good quarter, and that is also what we stated we've had a good mix in the quarter and consequently also higher volumes. So it's from a margin point of view, it been a very satisfactory quarter.
So we should be careful of using the leverage we see in this quarter.
Well, there is obviously a certain leverage. But it it's been it's been a good quarter and one that we're satisfied with
Okay. My second question is relating to the impairments and the write offs you make in the service business. Could you give a little bit more flavor to what you're actually doing?
You the longest story. We have 2 divisions in the company that we're focusing on and that is turbine and it it is service. We've had we have the management in place, and we have the structure in place for that business. And we now decided that we also have obsolete inventory, saying obsolete inventory even if we make a write off of 19,000,000 in the quarter. Obviously, with the numbers in service, it has a big impact on the margin in the specific quarter.
We are very happy with the overall performance of the service. And also the obsolete inventory even if we take the right of I mean, there's never that we sort of don't have any hope to sell it, but it it is appropriate to make the right of at this point.
So so just to be clear, you haven't reassessed any value of your service contracts?
No. No. No.
Okay. And is there any but just finally, is is there any impact from this impairments and write offs in in your cost of goods sold?
Yeah. It's comes in in on it it has an impact on the margin obviously. On on the good cost of goods sold? It comes below.
It comes all below?
No. I'm correcting myself, Patrick, it's in the cost of goods sold.
Our next question comes from the line of David Voss from Barclays. Please go ahead.
Yes, good morning, both. I have a couple of questions, please. First, regarding the PPAs that you're able to, sorry, that you're customers are able to back at the moment. How do you see those developing? I mean, clearly, forward baseload prices in California are $28 but also in Germany, electricity prices are below 30, gas in the US at it's it's at $2 30.
Is that impacting your customer's ability to generate new business at all?
No, I would say that as you I mean, I I'm not an expert on on on the customer's negotiation on PPAs, but if you look at our orders, growth, an order's booked for the 1st 9 months. I I'm I must say that I don't see any impact of lack of orders for us or and therefore of course that there are plenty of projects in the market.
Okay. And do those projects depend on
the PTC still being there?
I mean, of course, in the US, the projects, of today is with the PTC components and, and of course, if your question is what will happen with or without a PTC in the U. S, I think, it is, of course, very hot predict. I think the good news is definitely that wind is getting more and more competitive. I saw a study from I think it was LaSalle, about the US market on levelized cost of energy for the last 5 years that showed that as a market, the cost, the level of cost of energy for wind has gone down more than 50%. And of course, it's also something that we see that wind is getting more and more competitive at the same time.
Of course, when when policies are changed, you always get question mark in a market. So, there are definitely projects being discussed longer term, the, with and without PTC. And and I think in general speaking, of course, on your overall question also against the competition from traditional fossil fuel, I would say that wind has a very positive cost development and I think that is the reason why we see overall, a good market this year, despite then many countries moving into more type of auction systems.
Okay. Clear. My second question is on the service backlog. I picked up that you now see that having a length of about 6 years. I previously calculated that at 8 years.
Could you please elaborate on what, what the what the change has been there?
Yeah. And pretty straightforward. We had, have discovered an error in the, in the formula and that we have corrected and we are unfortunately seeing it 6 years instead of 8 years. But it is an error and it has been corrected. Having said that though, on the new order intake that we see the tenor is 8 years.
So it is the order backlog, but the order backlog value as such is unchanged. So it is just or just, but it is an error in the formula.
Okay. And so is it that my is my understanding a different broad you know, high level math there, on the prospective, revenues that you might have in the in the backlog, then I come to rough 6 years.
Is that not a methodology that you're applying?
No, I mean, we can go into a long discussion on how we have calculated and we have, have calculated, unfortunately, there was a small error in the formula as said and the 6 years is now the correct tenor of the order backlog.
All right. Let's take that one offline then. Thank you. That's all my questions for that.
Thank you.
Our next question comes from the line of Vasyl Amaz from SEB. Please go ahead.
Yes. That's my name and surname. Two questions from my side. Firstly, on order pricing. I know you said that and the quarterly order pricing is partly driven by mix, but could you provide us with some more granularity on this?
It such a big deviation compared to the previous quarters? And that's my first question, please.
Yes. No, I think that as usual, of course, the mix the mix in scope has a big impact on on the average price per megawatts and that will we will vary between the quarter depending on the scope mix that we have in quarter. And that is the biggest reason for the variations if you look at it quarter to quarter. So you can have different scopes in the quarters. Yes, turbines, even turbines without towers in some example compared to full scope.
So that is if you look at this from a sequential point of view. I, I feel as I said that overall pricing in the market is fairly stable. And of course, if you compare also then year on year, you have a currency effect. If you look at in in our price per euro per megawatt compared to the, I think, 0.89 that we had, in the same quarter a year ago.
Okay. So so are you indicating that we should be reverting to to, the trend pricing, which we've seen the last few quarters? Is this what you're indicating?
Oh, but I I'm not indicating any of that. I think I'm I'm explaining what we see. So in the market overall on pricing and that we will see variations between quarter very much depending on mix. So I think if you look at it on an average basis for a longer term. I mean, that is what we have seen.
Talking. And the second question is related to to to the project margins. I I appreciate that you're saying that it it's a very good quarter. But how does it compare to your backlog margins?
I mean, overall, and that is also sequence on what have been explained by anders, we see very stable price development across the board. And if and and we also have, a huge number of markets. So with the order backlog as we don't comment on any level but it's a very healthy order backlog and we're we're very happy with the quality that we see.
Okay. And then just one final question here. I mean, you've seen a lot of turmoil in the US and in the yield co market. Should we expect that to impact, any of your masters supply agreements?
I mean, overall, we ended that is also what we have indicated. We have a broad base of different customers. So we're not exposed in any direction when it comes to customers. We also have a very good payment terms that we're very consistent with. That also makes us very little exposed to what's happening in the market.
And to be very specific deal cost is not the vast majority of our customers in any shape or form.
I mean, to add to that, I think what we primarily seen from the course, less appetite of buying already constructed projects.
Okay. Perfect. Thank
you. Our next question comes from the line of Pinaki Das from Bank of America Merrill Lynch. Please go ahead.
I've got a couple of them. The first one is just on your margins, upgrade. You're looking at 9% to 10% for this year. But clearly, your orders are up over 20 over 40% this year. So next year should be a growth here in terms of revenues.
This trying to understand, you know, if you do more revenues next year, shouldn't your margin next year be above the 9% to 10%?
Well. We're not guiding for 16 but with what we see on the order backlog and order intake, we're very happy about the situation.
Okay. Secondly, my other question is probably more on the cautious side, you know, I've seen your your backlog is is actually down 6,600,000,000 for the quarter. That's obviously, a mix of good revenues, for offsetting the orders. I just wanted to understand if you if I look if I do some sort of quick math, it looks like you probably need like of 2,300,000,000 of orders probably in Q4 just to maintain the backlog where it is this is a more general question. You know, it's either if your backlog is at, you know, slightly over 8,000,000,000, you probably need to and and your sales are around 7,000,000,000 in the turbine business.
Probably need 7,000,000,000 of orders next year to just keep it flat. But just wanted to understand, you know, are you seeing order trends which sort of help you have some confidence on next year as well in terms of order that you'll you'll get, you know, a 70,000,000,000 of order so that you can maintain the backlog and the backlog doesn't go down in value terms.
Okay. I'm not sure that I follow your questions, but, to comment on what we're showing here in terms of the reduction in the order back log for the Q, you also have a 1,000,000 currency impact if you look quarter over quarter.
Okay. So of the 600, 200 is, is is is this currency?
Yes. Yes.
Okay. Cool. And the last question is, you know, I've I've seen that in your European, food deliveries and orders are relatively flattish now. And I don't know if there's only already some offshore included in the orders in in in in EMEA. Just wanted to understand.
Are you seeing any slowdown in Europe for to wind order as well as deliveries?
No. If you look at, MA, on the auto side, we we're up 27%. For the 1st 9 months and and we also increase our orders in the mail 5% in the quarter. So I I would say that we we see, we see a good solid, EMEA region from an order point of view.
Do those quarterly orders actually include Orange Offshore as well?
They include the 3 Megawatt Offshore order that we had in Q2, but not in Q3. But we there is actually an order after Q3 that was announced, the noble wind. So you will see that in Q4.
Okay, great. Thanks. Many thanks for the good results.
Thank you. Our next question comes from the line of Alex Caitre from Societe Generale. Please go ahead.
Solid quarter. Maybe I just, perhaps, trashed the margin question again. If I look at, the, q3 margins and just do the math, then there was probably somewhere like 160, 170 basis point positive margin, let's say project mix effect. Could you just elaborate on you know, what the moving parts were on the mix side, you know, geographies, you know, products and something else. And then also whether there was any effect from the Tianjin port issue during during the quarter.
So that was question number 1, and then I have a couple of follow ups.
Yep. So if we start with the tangent explosion, obviously, we have been impacted from a cost point of view by the explosion, but it has been overall very little. Some has been booked in Q3 or some will have had an impact in Q3, but we will also see some impact going forward. But the order of magnitude is fairly limited. And then if you look at the mix in the quarter, it is a good mix.
Variety. I mean, it's not only a mix of countries, but it's also scope of projects. So, overall, Offshore options on the on the obviously on the on the but that is more or less go that you see has an impact in the quarter. So underlying, we're still seeing improvements in the margin and that's also what we're working with with the accelerated earnings program. So you see a lot of things, a lot of activity to continue to improve the margins.
Then whether it's an average margin or not, I mean, we we think we're very happy with the margins that we see. We're happy with the activities that we have.
Right. Okay. Thanks for that. And then just on the share buyback, there was a question around the net debt position and there being rough around the SEK 2,000,000,000 mark at the end of the year, doing the math. I would have then thought that perhaps the it due to the share buyback being much higher, probably somewhere like 500,000,000 or 600,000,000 or so.
So just in that context, should we see the 150 as a starting point? And then just thinking a bit more forward, how much surplus cash do you actually need, on your balance sheet, to support your growth and also to maintain, to maintain a good balance sheet point. So just just to understand what the follow-up, let's say, capital ongoing cap adjustments why share buybacks sort of could be?
So we have not indicated the levels. What we've said is that Obviously, last quarter, we have access cash overall, but we're still very happy with the balance sheet that we have. We are in a industry. So basically when we calculate a level, we include the cyclicality and you would in a lower cycle consume 50% more or need 50% more. So based on that, we have excess cash and we decided that we will do an adjustment by buying back shares, but we're also investing in the strategy going forward.
We have not committed to any levels here. The commitment that we have is that we will continue the dividend policy that is in place and any further adjustments we will have to get back to you.
So just just to clarify, I
wanna say the consumption of, can I show below point in the cycle should be 50% more? Are we are we talking working cap little side of things are we talking free cash flow?
It's free. I mean, it's cash at hand that we're talking about. So to secure the company to continue the consistency that we have in place, we see that the need or the level should be 50% higher at that point.
Okay. Fair enough. And then lastly, in terms of a bit on the offshore side, how do you see the pricing development given, what what else the level of cost of energy that we've seen some of the recent MMs sort of referring to some of the projects in Denmark, for instance, where, unfortunately, the cost of energy that's being bid for is closer to 1,000,000 per megawatt hour mark versus probably somewhere like 15160 that's for projects that are ongoing. So just to get a sense, do you think pricing is coming back too fast in the offshore market? And is that creating a bit of a challenge for you guys?
If I if I comment first on, the the 3 Megawatt platform, which of course is where we have the the visibility in the offshore now primarily since that is the, the Vestas platform that, the joint venture selling. We we actually didn't have any delivery of that in offshore during Q3. Then your question on Offshore in general, I mean, that that question is actually for your joint venture that handles the offshore business. So the Vestas Mitsubishi Heavy Industry, you want to ensure we are of course participating there as an owner and I'm part of the board. But when it comes to how they view the pricing, in those is that question, we have to refer to them.
Thank you. Our next question comes from the line of Sean McCarthy from HSBC. Please go ahead.
Thank you. Two questions. Firstly, on the service
margin. You've mentioned this 1,000,000 write off, but you haven't included that as a special item, you're guiding for flat year on year margins.
Is that excluding or including this write off?
I mean, it's have GBP 90,000,000 back to GBP 29,000,000, I would come up
with a 17% margin. Am I thinking about this in the right way? Second question,
you sound very confident about
the PTC extension. I think
more and more confident than
I've, but I've heard you sound in previous cycles. What makes you so confident?
Okay. So if we start with the the marginal service, as we have said before, we see stable margins in the in the service business. And stable margins could be anything between 17% 19% we still consider the range very stable. And when we talk about stable margin, we do include the write off in of the 90,000,000 that we have in this quarter.
Yes. And then talking about the PTC extension, I think what I said was that we and I think as the rest of the industry believe that it will come up to the Senate by theendofthisyear in in December. How that will go. I think, remains to be seen. I, I haven't speculated in that.
What will happen if it will 2 year extension, 1 year extension or, a more phased out multi year plan or no extension at all. I I think there are still a lot of different opinions on that. I would say, just purely based on history and and of course also the fact that that that was a good, bipartisan support in in the finance committee of the Senate, of course, there are reasons to be optimistic that we will see some form of a PTC extension. But again, I think that, the way we deal with it investors is, as usual, work them with different scenarios, making sure that we, that we capture this very good growth that we see in the US today. That I think goes without saying U.
S. Long term with or without a short term decision in PTC this year will continue to be an extremely important market for wind energy. Actually last year more than 20 percent of all new capacity added in the US was wind. So there is no doubt in my mind that US, long term will continue to be an extremely important market for for wind industry and and therefore as well for Vestas.
Thank you.
Thank you. Our next question comes from the line of Shai Hill from Macquarie. Please go ahead.
Yes. Thank you. Marika, I wonder if you could, I'm sorry we're coming back to the product margin question. I calculate it as 200 basis points up year on year, which is a great performance. I just wonder if you
can give me a split,
a rough split. Between operational leverage effects and sales mix effects in terms of splitting that 200 basis point improvement.
Well, I will give you, the same answer as I said before. Yes. We have, an impact from from the revenue, or the increase in in revenue, definitely. And we also have, a good, good mix in the quarter. But we also see that we are doing the cost out to a very large extent as planned.
So you have different factors impacting the positive margins in the quarter. Okay.
Maybe I could just follow-up that, Marika, just in terms of, US because obviously you've got a lot of supply only. Deliveries coming through now into the income statement in the state, which, does that have a positive or a negative or a neutral effect on the gross margin?
We say fairly neutral. I mean, it is it really, I mean, even if the scope is is less, than you would also have see a lower cost because of of a smaller scope. So it's it's fairly neutral.
Okay. Thanks very much.
Thank you. Our next question comes from the line of Claus Kelle from Nick Credit Markets. Please go ahead.
Yeah. Hello. I'm Kloude from Nuclear Market. So just two questions. First of all, are there any offshore deliveries in, in your Q3 numbers, gap for VISTA, not for, MSI.
And secondly, the fact that we are moving towards this auction system in Germany, what will that mean going forward for? Yeah. For the dynamics in the market?
Yeah. So if I take it, there is no offshore delivery for Viasat's Freemaker in in Q3. I think when it comes to the German market, again, as I said on if I compare this year to last year in delivery, the mark at this slightly down as as expected. At the same time, if I look at the order situation, we see an increased intake for Vestas on orders in the German market. So I would say that we we view it as a as a very stable market and when it comes to the the the change to the the auction system for the feeding tariffs, I think remains to be seen, both actually timing and how it will be implemented.
I think that is very positive discussion today, with a long term, a grace period on face out and phase in. And of course, if that becomes the rules which we still don't know, I I would say that's very positive. I think what what what what is the industry has been good at handling is a long as there is a clear longer term policy with clear rules on how one system is, phased out and another system is faced in, then the industry are able to plan for that and handle those things. And that is what we what we foresee for the German market. Okay.
Thank
you.
Thank you. Our next question comes from the line of Jose Abowicz from Exane. Please go ahead.
Good morning, gentlemen. I have three questions, please. The first one is on the Indian market. You seem to be taking the market more seriously with your new investment. A couple of questions.
How long will it take you to have the new plant up and running? And what volumes are you targeting? And if to do that, you need to become a developer of wind funds. And that's question number 1. Question number 1, number 2 is on the shares to be canceled following the buyback.
I believe you will have about 6% of treasury shares when you finish your buyback, how many of these will not be allocated to employee stock options and can therefore be canceled at the next AGM And lastly, it's on offshore orders. Apologies if you have covered this question already, how many offshore orders have you taken in your q in the Thank you very much.
Okay. Let me start both India and I mean, you're you're right. I mean, India is part of of our strategy as many other markets in the emerging market. We we think that there is a good opportunity in there. We have taken some smaller orders in India, in the year.
We think that, obviously, we think that there is a solid business case to to actually produce also blade. In India, we have a Nacell factory since since before. The construction time, I would say, is normal for this kind of blade factories. So probably around a year. But as I said, we can of course and has done so in the post also import blades.
For competitive reasons, I will not go into volumes, that we target or that we can we can do on the factory. We will of course, do it in a flexible way so that we can manufacture different types of blade that fits well to the different type of turbines we we have dependent on how the market develops in the future. When it comes to Tony wind farms in India that is not our not our primary business model. So we will, work with partners, when it comes to their construction and of course with normal customers when it comes to the the ownership or the wind farms. And when it comes to land development, our prime strategy is to work with the strategic alliances and partners.
We go to your second question, which is the buyback program and you are right in the around 6%. The vast majority of the shares, the threshold share sport is for the program and basically close to all of it. So it is the vast majority is the capital structure adjustment. And then thirdly, there's no offshore in the quarter on down to EBIT line. Yeah.
On the free for VESTA.
I'm sorry to come back on the share buyback. I just of the 6% treasury shares that you will hold, what percentage would you be canceling based on your expectations at this point?
Well, we're canceling what we're buying, but but we we have up to this point. We have one 0.4% of treasury shares related to so that covers the programs that we have internally.
Our next question comes from the line of Barton Wayne from Citigroup. Please go ahead.
Hi, it's Hook from Citi. Thanks for taking my questions. I have 2 of them. The first one relates to the your US business. How much fixed cost do you have in the US business maybe as a proportion of your overall fixed costs?
Well, we don't indicate any specifically, but the U. S. Business is overall run very effect And because of the PTC profile of the country, obviously, we have a lot of flexibility to reduce the cost base as need be?
Maybe alternatively, is is there a megawatt breakeven that you can sort of tell us?
We're not sharing the megawatt breakeven level. But obviously, we have a good control. It's well run. And as I said, we have a big possibility to adjust the cost level in the US if the the size of the business is becoming smaller.
Oh, the 4 folks and plus the employees in the US, the absolute majority, the waste majority is blue color workers.
Okay. Sure. And the second question is on strategy. What is your current base case for the PTC that you are positioned for in 2017, I mean, in terms of ramp up and your production setup.
No. As I said before on the PTC, I I expect we that we and the rest of the industry will get clarity here on the PTC towards the end of this year. We are confident with the setup we we have in the US both when it comes to the ramp up that we now are executing on. We of course expect also a good activity in the US going into to 16. We are very happy with our position.
The market share and the gains we've done in the US. And we also feel that we have the necessary ability, to look at different PTC scenarios, when we have them more clearly towards the end of the year.
Okay, sure. Thank you. Thank
you. Our next question comes from the line of Mark Fraschini from Credit Suisse. Please go ahead.
Hello. If I could ask 2 questions, please. Firstly, conditions on the ground in Brazil. Can you talk about, you know, what your Salesforce and and commercial departments are seeing there? Secondly, Can you talk about potential payments made to staff?
I recall 2 years ago, it was also a very strong year with guidance upgrades. And I think the total bonus payments to staff amounted to €90,000,000 from memory is it likely that there will be similar costs, within the EBIT margin for this year and is that within your your guidance?
Well, that question obviously with the performance we have have, we would be very happy if we, we can pay a bonus to our employees, so that that's no nothing strange with that. We have also said that we will provide when we see that we're reaching our targets. The thing that can comment on. If it's 13 that you're referring to, you will not see a similar spike of of bonus provision in Q4 as you did in Q4 of 13.
I talk about, a bit about Brazil. Of course, macroeconomy from a macro point of view, Brazil is a challenging market and and also from, a a currency point of view. So of course, from a a macro, macro view, they're all definite concerns in in Brazil as a market. From a wind point of view, we see that it is a good market wind is extremely competitive. We see auctions going ahead.
I mean, it it it's a bit lumpy on, on the ordering side, of course, because of this, auction rounds. And it's also a market where you have to stay you have to stay very, very close to because of course, there are big swings in in currency. There are big swings in in PPAs in the market in the auctions as we have seen in the past. We are comfortable with our position. Maybe a bit lucky that we didn't go in so hard from the beginning not perhaps by choice but more sometimes you also have a good timing.
But uh-uh on the orders we've taken and on investments we are doing and we follow then of course order intake with the investments that we are doing. We feel that we are in a good position as well for the future of the of the wind business in Brazil, then of course as all other businesses you also have to have a decent, macro environment.
Okay. Thank you.
Thank you. Our next question comes from the line of Jonathan Lawson from Boston. Please go ahead.
Hi. Good morning. Thanks for the update. I have a couple of questions about the market in North America. The first question is, you can give us an update on the negotiation process.
Concerning the production Saks credit? I mean, what's the latest you've heard?
Yes. No, we don't petition participating in the negotiation around the the PTC. So, I mean, of course, the way we make our voice heard primarily in the US, on the PTC is through the North American Wind Association where we are a member. And of course also, the the lobbying activities. We have both in Washington.
And of course also in the general political landscape, where wind actually contribute to a lot of employment in the US. So but it it will be a decision, a political decision in the US. So course, it's something we monitor closely.
Okay. Can you say anything about how do you prepare a salesforce scenario that doesn't get extended?
No. Not more than what we talked about before. That first of all, again, Vestas has taken orders in, 31. Mark gets across five continents for the 1st 9 months. So, a global reach is a very important for us.
And of course, that means that and I would say that we are probably the most global of the winter manufacturers and that of course means that we are less dependent on single markets over time. The second action that we are working on has done so for the last 2 year yes is to have a flexible setup. The flexibility in the setup goes for for the cost course, it goes for the people. It goes also goes for the technology choices we've done. One example is blade, where we actually can move the molds from different markets as demands increases and and contracts.
So a number of different activities also on the flexibility side.
Okay. And my last question is, you mentioned the political landscape in the US as well. How do you prepare yourself for the change in the political landscape in the 12 months with a presidential election coming up?
No, I mean, what we are focusing is of course, uh-uh potential impact on regulations on, on the wind business. And and I mean, the generic, this speaking is of course that the greater policy certainty, the better for the industry. So that is what we are looking at. And and, and and I think, in most markets, including the US, you see, bipartisan both support for and against. And and I think that goes for for many markets.
So for me, it's not so much, a party political discussion.
Okay. Thank you so much.
Thank you. We have no further questions registered this time, sir. We'll hand the conference back to you.
Okay. Then again, thank you so much for your interest. Thank you for calling in. And, if not sooner, I hear from you, for the fourth quarter.