Thank you very much, and good morning, everyone. Thank you for calling in. As you have noticed, we changed the format a bit based feedback, this would should work better for all of us. So, The first quarter results, are usual disclaimer slide. So let me start then with the key highlight.
And by saying that, of course, I'm very satisfied with a good start of the year. And delivering a strong result in the first quarter. Actually, in many aspects, we see record performance historically for Q1. For example, order intake, that was record high at 1.75 Gigawatts also very solid development in the order backlog. That stands now at 1,000,000,000.
Return on invested capital also at the highest level ever at 44%. And also very good progress on earnings within EBIT margin before special items at up to 0.1% compared to a year ago. Overall, due to higher than expected order intake year to date, of course, also a greater visibility and a strong development of the U. S. Dollar we have increased our minimum guidance for the full year of 2015.
So the agenda, starting as usual, orders and markets, financials and then the summary with the Q And A. This is also the time of the year where we see the results of, external market analyst on market share in, in megawatt. And as you can say from this slide then, 3 out of 4 analysts have the best as a clear market leader. With around 12%. So that is, of course, encouraging for us and something that we obviously follow closely.
If I then go in and talk about the market and start with a regulatory trend. I would say that overall, we see the trends as a clear communications, ongoing, transitions from different support schemes, and, of course, negotiations around the different systems. In Americas, I would say that the update that has happened since we last talked is basically around the PTC. And IRS have now clarified the continuous construction qualification efforts. And summary of that is that it's the same as previously.
So you asked 1 year longer. So that's, I think, is the easiest way to think about that. So if you qualify project as a continuous construction, it now prolonged for 1 more year. In EMEA, Germany, there is discussions on, going to an auction system. We are still waiting for the detail on how that system will work and the first auction expected end of 2016 start of 2017.
In the Nordic Norway and Sweden. We see government putting forward supportive proposal to increase the support for renewable, which is obviously positive in Poland, also getting ready for a new auction system. And here, the estimate is that, that will be, happening by the first half of twenty sixteen. In Asia Pacific, there is currently an ongoing political discussion about the rest in Australia. As always hard to predict the outcome, but it's definitely on the agenda.
And in China, we see a continuous support for renewable and for wind with a discussion on the potential increase in the 2020 targets. If I look at the order intake, as I said, Q1 was the highest order intake ever in Vestas. 1.75 Gigawatts, an increase of 47% year on year. The selling prices remained fairly stable in the quarter. So looking at the order intake, The improvement was 562 Megawatts.
U. S, Brazil Poland and China were the main contributors to the order intake in the quarter, accounting for more than 60%. And then it's encouraging to see that we start to see traction with improvement year on year in Brazil and China, 2 of key markets to focus on our mid term strategy. On the price development, as I said, the price of megawatts is clear of 0.92 in the quarter. Here, we see some positive effect on the dollar.
So, if you take that out, I would say it's probably the same as the quarter a year ago, confirming also what I said that in general, we see a stable price situation in a competitive market. Also want to point out that of course the price for Megawatt depends on a number of different factors, the turbine type, the scope and, of course, the uniqueness of the offering. If I then look at the order intake, in the quarter, we had order intake in 20 different countries. Again, confirming our strategy of global reach, it is important to Vestas, and we see that we deliver on that with a broad geographical order intake. Overall, The main year over year improvement is seen in Brazil, Poland, China and Sweden.
Looking a bit in the different geographies, America is up 60%, primarily driven by Brazil, but also good activity levels in many other Latin American countries and in the U. S. EMEA up 18% year on year, also broad based improvements especially then in the quarter, driven by Poland and Sweden. But as I said, solid activity levels across a wide range of countries. Asia Pacific, of course, from a percentage point of view of very high, but coming from a low level.
What is encouraging then to say is that the year on year improvement in the quarter is solely driven from improvement in China. If I then look at delivery, delivery were up close to 30% in terms of Megawatt. And here, the improvement is mainly seen in the U. S. And Asia Pacific region.
So America is up 49%. The higher activity level is primarily driven by the U. S. But also improvement in Countries like Chile, Uruguay, Canada, while we saw a decline year over year in Mexico and Brazil. In EMEA, delivery decreased 8%, primarily driven by lower activity levels in the quarter in Germany.
That, of course, had a very high level during last year. On the other hand, then we see improvements in markets like South Africa, Finland, Poland and France. Asia Pacific, again, of course, extremely low levels last year, but we see improvement in delivery in all markets from a low level. That leads me to the backlog. The backlog increased 1,000,000,000 and we now have a record high backlog at EUR 15,000,000,000.
The turbine business increased $800,000,000 and the service business, $500,000,000. A few words about our joint venture with Mitsubishi Heavy Industry, around offshore, In the quarter, we have received the type certificate for the 864, 8 Megawatts turbine. Which of course is very important and also confirm that we are on track on the technical milestones that we have set up. We have a prototype, as some of you know, up and running. And with this prototype, we have actually set the world record in electricity production for 24 hours.
So the operational performance is progressing according to plan. I had talked about it before, but the basis for the joint venture was, both technical and commercial milestones that were agreed between the 2 parents company and they also trigger payment into the joint venture. And here, we are progressing as planned. Both on the commercial and on the technical side. Then I would like to hand over to my trusted CFO, Marika, to go through the financials.
Thank you, Anders. So we thought that we normally do with the P and L. And, as you can hear from others, there is a lot of positive development here in the quarter, and that is also well reflected in our P and L. You see revenue is increasing significantly, I would say 18% change compared to Q1 of last year. That also has an impact on the gross profit.
The way you see in absolute numbers an improvement of 23%. That is an improvement in gross profit percentage by 0.6. Fixed cost remains under control, and despite, I would say, Q1 of last year being very low. And do you see the drop down effect on the EBIT is 98% improvement compared to Q1 of 2014. And then the income from investments that you see here, the 4,000,000 is the joint venture that Anders just finished with.
And the joint venture did profit of 4,000,000, and 2 of them is allocated to VESSA. And we also So they invoice had a profit from the turbine sales of 17, 15 of those were corrected as we normally do according to the accounting principles. So that gives us 2. So the 2+2 is the 4,000,000 from the joint venture to be very precise. That gives us a record net profit of SEK 56,000,000, and you can see clearly a huge improvement compared to last year.
The margin we deliver in Q1 is 5.2%. Compared to 3.1% last year. To remind everyone again, this is onshore only. And there you see compared to Q1 of last year where we had already eliminated where we have already eliminated the offshore impact. And you see a 21% increase year over year.
And then just to be, this is a significant part or very important part of our strategy. And the midterm target in the strategy is going 30% on revenue. We continue to deliver stable margins. So you see an EBIT margin before special items of 21%. And Anders have already talked about the order backlog and you see a SEK 500,000,000 compared to for of 2014.
The average duration in the order backlog is 8 years, and I think that's also very important to highlight. The balance sheet, not a lot of news apart from the net cash position continues to be strong. So it's a 1,700,000,000 of net cash. You see consequently, the net debt is also improving compared to last year. Net working capital is also improving here you also have a slight currency effect of $140,000,000 or a slight.
You have a currency impact of $140,000,000 on that on the balance sheet. And we deliver a 31.4 percent, solvency ratio compared to 31 last year. The change in net working capital, the net working capital focus continues. We think it's it is both in an upturn and the downturn very important to have the focus and having the right processes in place. And I would say that net working capital is clearly representing that.
You see a positive development over the last 12 months, primarily driven by higher prepayments, prepayments in this case is both down payments and milestone payments. And you also have an impact from payables, because majority because of the high activity in the company. That is slightly offset by higher in inventories in over the 12 last month. You see the same improvement over the or you see an improvement over the last 3 months and the drivers are, the same. So it is payables, and, prepayments that are, driving this prepayments primarily.
The warranty provisions, we have focused, as you know, a lot on quality and that is well reflected in in the consumptions, and the provisions, provisions based on revenue, obviously, consumptions continue to be stable. We also have a loss production factor that is very stable below 2% at this point. If I go to the cash flow, here you see what we said also in for the full year 'fourteen. You see a cash flow that is to a large extent driven by the improvements in the operating activities. And you also see the net working capital here being, currency excluded.
So it's a clean cash flow that you see, you have no currency impact on this. And we managed to deliver 146,000,000 in the quarter. Compared to negative last year. Total investments continue to be stable. So we are more or less in line with the Q1 of last year, SEK 63,000,000.
And the investment continues again to be primarily in mold for the 110 and 126 and also capitalized R and D. The capital structure continues to be strong. And we are net debt to EBITDA in negative territory, as we've been for quite some time. The target remains, of one that is clearly improved by our net cash positions and also improved EBITDA. The solvency ratio dropped compared to Q4, but increased compared to Q1 of last year.
And the Q1 development is primarily working capital element and also the improved dividend. As you recall, we issued a green bond to strengthen our capital structure even other. We have thereby, secured long term financing a 7 year to be precise. And, we have strengthened our balance sheet and this clearly support what we want to achieve with, as a solid capital structures. And we also maintain a presence in the debt capital markets, which is also very important.
The green bond is unique to that sense that it's used for general corporate purposes as we are considered a green company. And being in the wind energy. So I think a good performance by the company. Returning vessels capital continues to be high. ROIC is now approaching the 44% territory.
And this is the focus that we have. So it's both, earnings as well as our net cash position and balance sheet items that is improving this. Over to you, Anders.
Thank you, Marika. So to summarize then, as I said, very satisfied with the Q1 results, good start of the year, reaffirm that we progressed well on our overall strategy on profitable growth. So if you highlight on the market and grow faster than the market, and the, the turbine side order intake close to 1.8 Gigawatt in the quarter. Also, on the service side, another key objective, as Micah said, 21% growth in revenue year over year. A solid order backlog of $15,000,000,000.
So we are on track. On improved earnings, we see improvements in the EBIT margin year on year and in the quarter at 5.2% and ROIC then which, of course, is a combination of all different operational excellence activity at 44%. Looking ahead in this year then, as I said, higher order intake year to date than expected, of course, also being further into the year, a greater visibility and, the strong development of the U. S. Dollar to the euro are the prime reason for our revised upgraded outlook for the rest of the year.
So on the revenue side, We have minimum 1,000,000,000 on the EBIT margin before special items, minimum 8.5 percent. Total investments, we have increased with approximately 50,000,000 to approximately EUR 350,000,000. Then the free cash flow minimum EUR 600,000,000 And we have no changed view on the service business that we expect to continue to grow with stable margin. So with that, we open up for Q And A.
Okay, thank you. Okay. And we have first question coming in from Christian Tornor from Danske Bank. Please go ahead.
Yes, thank you. And first of all, congrats on the results. Very impressive. A couple of questions from me. First of all, you stated in the report that revenue is positively affected by EUR 150,000,000 due to currency you give us the same number for the impact on EBIT that is due to currency?
Yes. And you are correct. And just to to remind everyone again, this is the translation impact. It is obviously more on the revenue when you can k down further in the P and L, you have a negative impact on the fixed capacity costs as well as the depreciation. So the impact on the EBIT is, in the lower or in single digit numbers for the quarter.
Okay, very clear. Next question, you, you come up with a positive cash flow and increase your cash position, upgrade cash flow guidance. Obviously, you're going to continue to increase your cash position. How much cash do you need on the balance sheet?
Yes, you are right. We indicate that we will continue to improve our balance sheet and We are, as we have said earlier, continuing to evaluating our capital structure and consequently, our next
Q4, you stated you had 3 gigawatt in MSAs in the U. S. Can you give us an update on that number?
Yes. So, we have a potential frame agreement up to 3 gigawatts in the U. S, and that still holds true. So that's still the case. So nothing really have changed there.
It is, MSAs, as I said and it's a potential up to figuring out what we are still as in Q4, positive on the U. S. Market. So, no real change from last quarter.
Okay. And the next question on line comes from Patrick Sedberg from Nordea. Please go ahead.
Yes. Good morning. Some of the same topics I'm gonna ask to. I'm just wondering on your new revenue guidance for 2015, how much of the upgrade is explained by FX?
The majority of the upgrade is relating to operational operational improvement as we see it. And 1 third is in the order of magnitude now, or is 1 third is currently.
Okay. My second question is related to U. S. Regarding your capacity situation for 20152016, how may are you able to squeeze in more orders, like I said, or deliveries into your 2015?
Mean, the end of the speaking, of course, we, we balance, try to balance demand with capacity. We have, full production capability in the U. S, both Nacelles and Tawaz So we we, as I said, we have the full manufacturing capability there. We are confident that we will be able to fulfill the demand that we see in the U. S.
Market. And exactly how much capacity we have versus competition for compared the reasons I will not go into.
Okay. But it was fair to assume that you have some capacity left for 2015 and quite pending capacity left for 2016? It's fair
to assume that we have the capacity left that we need. And I think also you should also, I can also remind you that we, of course, have changed especially on the blade side and with a more flexible setup with the new structure shell. And as you as you also seen on the investment side, the absolute majority of our new investment goes into molds for the 100 and 10, which of course is, sorry, which is the key thing to increase the capacity.
Okay. And then my last question is regarding your your order intake in China in the first quarter. Could could you just give some wording about the success and and the reason why we're seeing such a high number of of of orders from China in the first quarter?
I think, of course, as you say, We are really encouraged. So I'm really encouraged that we see a good year on year increase in China. We have taken orders in the quarter of 320 Megawatts, which of course is a considerable improvement compared to the year ago. We have launched a new strategy China. We have put in a new management team in China.
We have worked on the old customer relation, of course, we have changed our service offering. So we've done a number of different strategic initiatives to get, to get more traction in the Chinese market. I have also said before it's a mid term strategy our OB activities to increase VESTA's performance year on year. And But of course, there is a lot of work that remains to be done in China. And it's really encouraging to see the science now also on orders.
And the next question in line comes from Klas Kiel from Newcrest Markets. Please go ahead.
Yes. Hello, Kauskeel from Nucleated Markets. Two questions, if I may. First of all, yes, congrats with the strong order intake. It was yeah, pretty solid.
But anyway, I was a bit disappointed about the unannounced orders. Could you say anything about the weakness in the small orders, is that due to Germany perhaps? And secondly, we are now starting to see a solid order intake in, especially China and Brazil. And there's no doubt prices in these two countries are lower than we are used to. But could you confirm that margins in these countries are on par with the group?
Thank you very much.
Yes. I mean, 1st of all, I'm not disappointed on the auto side on the contrary. I'm very satisfied there. With the orders both in Q1, as I said, record high for Vestas and also year to date. So And of course, we have a clear policy on announcing orders both from a size point of view and when they are firm and unconditional.
So, how many smaller orders you can have in a quarter will, of course, vary quite a lot. So when it comes to the prices, and then again, price is very related scope and local market condition. Of course, it's fair to say that in China, the price levels are usually lower. And that but also the scope is lower. So, quite often in China, for example, we don't sell towers.
So you have a different scope. Then of course, you have a lot of different sites also in China. It's a big country with different feed through the turbine types to the site and therefore different margin profiles. In Brazil, actually, the price per megawatt is is not low, contrary. It's a it's a fairly compared to global average, high price level.
On the other hand, in Brazil, you have a lot of local content requirement that actually then also up the cost. So, on a price level point of view, Brazil is not a low price market. On the other hand, from a cost point of view, it's not a low cost market either, so due to the local content. So it's it's hard to, to, so you can't say really that it's low prices in Brazil. I mean, we, in general, We don't comment on margins in specific countries.
And as we have stated before, I would say that the uniqueness of the site defeats with the turbine, all the factors I talked about the content or the delivery and, and, the requirement of local content has a, in most cases, a bigger influence on margins than the geography.
Okay. So just to sum up, so we should not expect a margin squeeze if the if Brazil and China starts to constitute a bigger part of your revenue?
I mean, we did we do the guidance on what we see as the overall margin or the total mix of Vesta.
Okay. Thank you very much.
And the next question in line comes from Mark Freshney from Credit Suisse. Please go ahead.
Hello, Mark Freshney from Credit Suisse. Two questions. Firstly, on the foreign exchange, Can you talk about how you use financial products to hedge your head, I. E. Your hedging process And secondly, just on the large amount of cash, on balance sheet, clearly, you've laid out a number of target criteria for the balance sheet and you're still falling short on the solvency ratio.
If you meet all of those targets at what point would you consider ways to reduce capital? And would you consider share buybacks, acquisitions or capital returns?
Okay. If we start with the Forex question, as, as I said, we are at a very large tent naturally hedged, and that is also the type of business we're in as it's long distance to ship this kind of products. So, the remaining part that is not hedged which is, in the order of magnitude, the 15% is hedged by project more or less. So that, that is the part that we hedge when we have a firm and unconditional order, then we would hedge that specific projects. So that is relating to the ForEx.
If we look at the cash position we have, There are, sort of, different options we have, on, whether a share buyback or a dividend. We have, obviously, paid a dividend. And when we pay that, it was also state from our board that, this was re installed. We haven't paid anything in 12 years. And we paid and we didn't have the intention to do this as a one timer.
But again, that is a board decision when we meet the 2 targets that we have put up for ourselves. The solvency ratio, yes, it is, not as strong as it was in Q, Q4, but it's still a good level and it will vary in between the core quarters. So it's nothing that, sort of keeps, keeps me awake, during the night.
Thank you.
And the next question on the line comes from Claus Amherst from Carnegie. Please go ahead.
Yeah, hi, and congratulations with the Q1 report. I also had a few questions. When it comes to U. S. Orders, you have had a very busy start to 2015.
But do you still see over a PDC qualified projects in the market that have not yet signed a turbine contract? That'll be my first question.
Yes. I mean, it could very well be. So we as we announced in Q4, during the hectic time of last year, we signed, MSAs with a potential up to 3 gigawatts, a majority of those with FTC qualified components. So, yes, there might very well be additional projects in the market that qualify. So with the safe harbor qualification, I guess that's what you what you mean, because there are two ways then to get the PTC components, the, say, fiber and the continuous construction.
So there might very well be projects in the U. S. Market both on the Safe Harbor side of the see qualification and of course, of course, on the continuous construction.
Okay. And then do you see a different product cycle when you compare the frame agreements you have and those projects you have signed during 2015?
No. I wouldn't say so. So I would say that And of course, on this PTC qualification and frame agreement, we should also remember that, of course, customers buy some sales product project, so to speak. So there could be project that customer had an intention to do under a frame with us that contains, PTC qualified components from us, but they then decide to sell that product to another customer. For us, that is, of course, it's the customer decision.
And of course, we have the qualified components. So, but that may that you can see dependent on, on the customer's movements that projects actually are bought and sold between cash as well. So, on the product side, the clear dominant product for Vestas in the U. S. Is the VA 110, but we also see, interest now coming up for our free Megawatt platform, which we think is very encouraging, actually, in the U.
S. But the majority, for the the short term, at least, as we see, is around the $100,000,000 or $110,000,000. Okay.
Just, you know, a follow-up, just to be sure, you have still 3 gigawatt of frame agreements in the US, right? Approximately. Right. Okay. Thank you so much.
Okay. And the next question in line comes from Sean McLoughlin from HSBC. Please go ahead.
Good morning. Two questions from me. Firstly, on services, if I think by February, you guided to stable service margins year on year in 2015, but given the strength of the Q1 margin, do you stick by that or should we be expecting actual year on year margin erosion in later this year? Secondly, on the JV, when do you expect the next milestone payment and what does that depend on specifically? Thanks.
Okay. If we start with the service margin, yes, we are continuing reiterating our stable margin, guidance or soft guidance, if you would like to call it that you will see fluctuations in in the quarters. And I think that has been the case also before. But we consider the margins to be at a stable level.
And on the joint venture payment scheme, as I said, we have all the joint venture, I should say, have received a majority of the payment, according to the schedule. And, we will not go into the details on the agreement between us and Mitsubishi Heavy Industry on the field that remains.
Okay, thanks.
And the next question in line comes from David Wells from Barclays. Please go ahead.
Yes, good morning. I have two slightly more strategic questions, if I can. Last week, we had a very interesting development coming out of the U. S. Where Tesla announced it will be unveiling its stationary storage business, pitching that solution as a missing piece in transforming electricity grid.
It occurs to me that that could potentially be quite, significant for Vesta. So would just like to hear your thoughts on how you are thinking about positioning yourself in a world where you might have utility level, energy storage. That's question 1. And 2, I would also be very keen on hearing your thoughts on kind of stepping away from investors for a moment and thinking about the wind industry as such on how you see the level of consolidation at the moment. Is that adequate?
Do you see room for improvement there? Very keen to hear what you what you think about that? Thank you.
Yes. Thank you. If I start with the energy storage, I can't say I'm an expert on Tesla's release. But of course, energy storage and the development in energy storage is, it's obviously a benefit for for renewable and full wind. So that is a positive development in itself.
And of course, we have seen battery technology getting better and better and the cost points getting lower and lower. So that is definitely a positive development for renewable and for wind. Yes. And of course, that development happens in a number of different areas on Tesla of course also being involved in the transport area, which is one way or storing it in the car. And then also this type of, as I understood it so far, residential storage systems, but also there are, there are kiosks being build or more utility, big storage system.
So that is positive. And that, of course, also then in connection with better grid connectivity with connections between, for example, hydro, which today in the Nordic region works as as the one storage mechanism between Sweden Norway and Denmark that enables Denmark actually to have 40% of electricity generated by wind. So all those things are, of course, positive trends for the industry and therefore for Vestas. On the level of consolidation, I would say that what we've seen recently in the market is, of course, more type of your adventure setups, and primarily towards the offshore market. So, we did that some time ago.
Of course, with our joint venture, we admit it needs to be heavy industry, we see now some competitors also announcing, joint venture on the offshore side. So There is a certain amount of consolidation activity that happens in the market. Of course, we also see an acquisition from one of our competitors. So of course, it's something as a market leader that we monitor closely.
Okay, fair enough. And just coming back on the storage question then, is that something that that is already involved in itself. I mean, are you part partaking in these pilot projects, or indeed, do you feel the need to to to invest yourself in, in some kind of, storage solution there perhaps also with a partner, but does Festas need to invest And then finally, if I may, the point is well made on the fact that the dividend is a board decision, which we which we understand. I was just wondering if any potential acquisitions are also a matter of the board to decide on or if that's the management team indeed that would drive such a decision?
No, I think or your first question around the energy storage, I mean, we will not invest in battery technology as such. I think our other companies who for doing that, which is good for us. What we will invest in and what we will participate in is, of course, trials, but then we will focus on the grid connectivity from our turbine and how we can optimize the connectivity to those kinds of systems. So and we have a very advanced solution in our current turbines, especially for, the most strict grid markets. And there we put a lot of effort in, as also done in the past.
So that interface towards the grid and how we can optimize that is the area for Vestas to invest in, not in and participate in trials, not in the in the battery type of technology. And when it comes to the dividend policy or absolute the right. It's in the under board decision, of course, executive management, can do propositions to the bond in a normal way. When it comes to acquisitions and so on, I will not go into to details on the roles of responsibility more than what we describe in our annual report between the executive management. And and the board, but of course, should situations like that occur, of course, we will be completely aligned with the board.
If I can just down the line, I mean, we have a very strict governance like all other companies on what decisions can be taken where just to underline that. So we're not different in that perspective.
And the next question in line comes from Pinaki Das from Bank of America. Please go ahead.
Matt. Yes. Hi, good morning, everybody. I've got a few questions. The first one is on FX.
You mentioned that you've borrowed 1 third of your guidance upgrade because of FX. Could you give us a rate that you've used? What rate have you used for full year guidance for 2015? That's the first question. 2nd question is around U.
S. PTC. It seems like it's not entirely clear what's happening Obama wants permanent PTC, the Republicans don't want PTC at all. So could you give us some thoughts around where do you see this thing going? Over the next year, sort of end of this year or beyond?
The last thing is just on the 8 Megawatt Offshore turbine. It's been almost 1.5 years since the Mitsubishi JV was formed? When do you expect to see meaningful orders for please make a work turbine? Thank you.
Thank you. So if I start with the ForEx, the, the guidance, as we said, we see a very strong development from beginning of 2050 to the point we are at now. And, that strengthening of the dollar is part of, of our guidance, as we stated, but I just would like to state again that the vast majority of the upgrade comes from really operational improvements that we see at this point.
Could you give us the rate around what rate do you view for the guidance?
You would be able to see what the rate is end of March this year and beginning of the year. So that is a different difference that is reflected in the guidance.
Regarding P2C, I would say that, of course, now with the clarification of continuous construction, also in C in, we, of course, don't see a good solid market in the U. S. For 2015, 2016 delivery. What will happen later this year on extension, of course, that is Very interesting question for us as for many others and wind industry. We are working with Avaya, the the wind association organization in the U.
S. And, and that's our way to influence and lower before an extension of the PTC. I think as usual, it's very hard to predict, but I can just conclude that so far it's been extended in one form or another 12 times. So from a probability point of view, that, of course, looks fairly probable. Regarding the offshore, I must say that, I don't know exactly what you count as significant order, but I'm very satisfied with both the interest and the announced order we're done.
It fits very well actually with our timing. Have taken an order redone, on Bellevue that, and of course, Dong is on the customer side, today, the lead are in offshore. We will start those delivery in 2016. And that actually fits very well with the timing we have when we are ready with the product. And of course, besides that, we are working on a lot of other us for the future, and we get a lot of interest from the customer.
And, do you want to be unsure will, at least today, follow the same principle then on order announcement on firm and unconditional.
Do you expect to see any orders in Japan anytime soon?
I would say very hard to predict. There is definitely any interest for, renewable energy in Japan. I think, of course, for obvious reasons, very dependent on import of fossil fuel. It's also, a market where at least historically it's taken its time. So, I think there is a good potential.
I will not speculate in exactly when. Thank you. Thank you.
And our next question comes from Alok Katro from Societe Generale. Please go ahead.
Hi, thanks for taking my questions and congrats on a good quarter. Two questions, if I may, please. Firstly, just in terms of the margins, I mean, could you just talk about how the project mix and project margins fit in Q1 and how does the margin, the backlog sort of look like versus, let's say, what you saw in February? And then the second part of the margin question, of course, is now that the target for this year is greater than 8.5. That's a 5 year high sort of level.
Orders seem quite good. Pricing and cost discipline seems to be impact. Are we sort of looking at double digit margins in 2016 2017 perhaps, so to say? And if not, then what are really the hurdles to achieving that given what we're seeing in terms of what I said in terms of the trends? So that was on the margin side.
And then generally just outside of sort of P and L, well, on Brazil specifically, what we are sort of hearing from some of the industry players is that the execution and environment is quite tough with the macro uncertainty inflation currencies and so on and so forth. So just wanted to maybe get a sense from me on how you see that sort of an environment and what gives you the confidence of executing well in this sort of an environment? And are there any sort of safeguards in the contracts urgently?
Okay. If I start with the margin and the the mix impact. As we are in a project business, as you're fully aware, and we are rigorously negotiating each project. So that is also why, Anders has said now, a few times that the scope impact, has an impact, but I would say it's really how we negotiate each project. And, scope is obviously different, but the cost picture also depends on the scope.
So we are, I would say, managing, the margins on each project in a very solid way. And then, your, more speculative question on, we have said stated in the midterm strategy that we want to have best in class margin. So that's what we're striving for. We're also driving to do better as a company. So that is the my comment to margin EBIT margin development.
Yes. Some comment on Brazil specifically. And I think if I try to answer it in in different parts, the things that we can control as the companies. And of course, the things that that is a bit out of our control and where we can have more mitigation type of action. It's, of course, 1st of all, the BNDS approval for local content requirement, that we are we have, we follow the process that has been set up, which means that you have a pre approval.
So speak an engagement where you get approval for your plans. And then there is an auditing process for Viestas and all adults are by manufacturing that you fulfill those requirements and therefore get the qualification on local content side. And as I said, that process, I'm confident with, and that we follow and execute on according to the agreements we have and therefore qualify. When it comes to the macro or when it comes to the more specific wind, which I think was part of your question and so on, on grid connectivity and so on. We have seen that there have been challenges in the market, with grid connectivity nothing completely unique for Brazil.
I would say I think that we we face that situation in several of the emerging markets where the grid definitely had to be built out not just for renewable, actually, but because for all kind of new electricity generation, as yes, there the electricity demand is increasing. There is a need to build out the grid and the capacity of the grid. That is sometimes not in timing point of view, not 100% aligned. And that is, of course, then when you see this mismatch, between build the generation or build win the generation with grid availability. That is of course a concern, but I think overall, the positive is of course that there is an increase in energy demand wind is very competitive in Brazil.
So it's more of a timing, a concern for that. Then Brazil as a market and currency and so on, of course, historically, it's always been more volatile on the carousel side. And, and, I have no sort of predictions on the currency going forward in Brazil. The countermeasurement And it's not something that we, as we asked us, speculate in, I mean, we focus on of course, on our business, what we can do on that aspect is, of course, again, local content to a higher degree. So you get more of a natural hedge.
So that is, what you can work with, in order to limit your exposure on different currencies. And I think if you saw the last auction now in Brazil, there was a reflection of that the currency of a lower currency and actually the PPA prices went up in the market. So that is the sort of counter measurement that we can do, but I think you have to accept that in those kind of market conditions. You have to accept the conditions, I'll speak.
Thanks. Just to follow-up for Marika, how do the project margin or how do the margins in the backlog look today versus let's say in February? Are we seeing stable better maybe or?
I would say, we, as I said, we are sort of having a strong focus on the margins. And consequently, there is absolutely stable margins in the order backlog.
And our next
question comes from Jacob Peterson from Citibank. Please go ahead.
I have a couple of questions. First of all, on the order intake, It seems as there's been a step up, a step change in the first quarter. To review that as structural? Or is it a question of new gaining market share? Is it a coincidence?
Or is it a question of you, yes, moving forward on your customer initiatives, you know, meeting the customers early in the development process, creating key accounts. Is this some of the success that we see in the improved auto and segories just improved markets overall?
Yes. As I said, I mean, I'm very satisfied with the overview and take in Q1. Record high for Vestas. And, of course, we all have different means of all the announcement, us and the competition, So if we are gaining share, so to speak in Q1 or not, I guess, the answer of that, we have to wait a little bit. We, of course, follow the market closely and and try to estimate order intake from all different turbine manufacturers in the business.
And I'm sure that you do that as well. And I can just conclude, I think, 1, I'm very confident with our position And that means both, how we interact with the customers, how we execute on the strategic program that we have around account management, around early engagement, but also around the competitiveness of of our products and services.
Okay. My second and last question is regarding the US market. What is your field when you look at the U. S. Customers?
They were quite stress tests tested with the way that the PDC was extended by the end of 2014. If we get a similar extension mid December 2015, will they be able to have a project ready to get to take advantage of such a short PTC extension to create some stability through 2017 as
well. What is your view on that? I think, of course, UAC is a very dynamic market, yes, for the reasons that you described, of course, as an industry and as we asked, as we would preferred, a long term secure framework, to plan on, and so on. I think there, of course, we are definitely not unique. And that is, in the end, of course, our lobbying.
But having said that, I must say it is a very dynamic market. A market that are fairly used to by now this way of operating. And that means that there are a lot of potential project developers that are lurking ahead on qualifying early into the pipeline. And then, of course, decisions are taken fairly late one way or the other, but I must say that all the market has got in use to this way. So working, so there is quite a lot of prequalification of projects that are put in pipelines and then maturing as as the different deadline approaches.
I think we're also seeing in the U. S. Now The latest trend on the customer side is definitely setting up yield costs to lower the cost of financing. And of course, they are also the independent on availability of projects. And that project is actually are getting built and then dropped in today's yield costs.
Okay. That's very informative. Okay. Thanks very much.
Thank you.
Okay. And there is a last question online coming from Praful Ahmed from Please go ahead.
Yes, this is Fazal Ahmed from SEB. One question from my side. Production, did that run smoothly in Q1, if you could comment on that? And the reason I'm asking here is that your deliveries are up almost 30% in the quarter. And your service businesses also up quite nicely with margins expanding and So why is gross margins only expanding 50 basis points?
Okay. Yeah. The yes. You are correct. The deliveries are up 30%.
You have As we have said before, deliveries is not the 100% measurement for the gross margin development. We think still that we delivered better margins, gross profit margins compared to last year. And again, you will see some fluctuations in the quarter, but remember, we have lifted the overall guidance. So obviously, we are confident on on the margins, in the business.
And could you just comment on the production? I mean, was that running smoothly or did you have some ramp up costs or because fifty basis points, it doesn't seem very, very much.
Yes. I mean, yes, no, speaking, we actually increase delivery last year, also year over year, 30%. We increased delivery this quarter, 30%. So Of course, we are very busy. And I mean, of course, it puts a strength on the organization to do the ramp up But, having said that, we have changed the technology on the blade side.
We have a flexible setup where we can where we can go to, free shifts, and we can sort of have flexibility between 1, 2, and 3, 3 shifts. So of course, that kind of challenge to ramp up fairly quickly as we as we also did last year, has its challenges, no doubt, but we are but I must say that I'm happy with the performance. I'm happy with the performance in the production unit for Q1 as well.
Okay. And that's very helpful. And just to follow-up on this point, should we expect a more smooth kind of production in Q2, Q3 versus Q1?
I think that is we are obviously working on having things that as smooth as possible, but just to highlight what Anders said, it is a high activity level. So, there could be fluctuations.
Okay, perfect. Thank you.
Then we will end the call. And again, thank you so much for calling in. Thank you for your interest and your questions.