Good morning, everyone, a warm welcome to the Q2 presentation from Vestas. For me and on behalf of executive management here, first, I would like just to extend a huge thank you to our colleagues around the world. I think for their commitment, the dedication, and also how we have been able to absolutely focus on business continuity is nothing less than exceptional in a quarter like the second quarter of 2020. With that, I would just like to take you directly to our key highlights. In Q2 2020, we had strong performance in, again, challenging environments, and we have gone through this without having received any state aid in any of our countries. Revenue was EUR 3.5 billion. It's up 67% compared to the Q2 in 2019.
Our order intake continued at a very high level at stable pricing, so we took 4.1 GW of order intake in the second quarter. It also leads to an all-time high backlog of in excess of EUR 35 billion. In terms of the EBIT margin, we had an underlying EBIT margin of 5.9%. That was impacted by an extraordinary warranty provision of EUR 175 million, meaning that the reported EBIT margin for the quarter is 1%. We had another stellar performance in our service business. Organic growth of 6% in servicing Q2, organic growth compared to Q2 2019, and an EBIT margin of 28.5%. Today, we will also give a bit more details of our sustainability. Our CO2 targets scientifically were approved accordingly and verified accordingly to the Paris Agreement, and we'll come back to that with a bit more details in the presentation.
First, I would like just to give a highlight of how have we actually gone through the Q2 in terms of the COVID-19 crisis. You know we have done this without any state aid, but we also done it with a primary focus on keeping everyone safe at work and also back home. It also leads to that when we then set out to do that, it was with business continuity as the prime driver for us when the COVID-19 broke out in February in China. Again here, a big thank you to our customers and also to our partners in terms of suppliers and partners around the world, and also, again, to the colleagues. I think it's also fair saying we're in Copenhagen, it's Europe.
We probably have a little bit more relaxed attitude towards COVID-19 in the societies, but we also have to appreciate epicenters right now are still Americas, it's India, South Africa. Therefore, we really, really have to be fully attentional to live by the protocols and also keep going. Suppliers have generally caught up, managed really well, and very pleased with also the support and the commitment to catch up during second quarter of this year. I think when we come down to all of this, we can talk about how well we are managing both the manufacturing and the supply chain coming into the factories, especially in some of these epicenters around the world. I think nothing better speaks to the evidence of that we, in first half of 2020, we manufactured and shipped 9.6 GW, which is up 60% compared to the same period 2019.
Of course, this is the underlying also support to come out and reinstate our guidance for the year. We go to the second quarter order intake. As said, 4.1 GW. We had a slightly lower order intake in the comparable quarter in 2019, where you would appreciate U.S. have been a very dominant factor in Q2 2019. In Q2 2020, we have seen large orders in U.S., China, Vietnam, and the Netherlands were among the main contributors. When we look at the ASP, very stable, remained stable also throughout Q2. Of course, with the usual caveat of that the geography turbine and scope, of course, influence the ASP of 0.78. That leads to an all-time high order backlog. It's in excess of EUR 35 billion. It's up 11% compared to the similar time last year.
We passed EUR 16 billion in terms of the turbine business, and as you would see, we have nearly now at EUR 19 billion in the service, and you would also have seen from the announcement that we have passed 100 GW on the service. If we give a little bit more details on the Power Solutions, we have had, as I said again, a strong focus on securing the business continuity, and very pleased to say that has really succeeded in the quarter. We have a broad-based order intake from across EMEA.
That has not yet been influenced by the Green Deal, but of course, we also take a note of that a lot of countries are now talking about green recovery program as part of also looking ahead, not only to the coming year, but probably more to the coming decade of that green renewable transition. We also positively here have seen a start building of a pipeline in 2021 deliveries for the U.S. We have had more than 1 GW of order intake for the U.S. in the second quarter. As we have been saying, at least throughout the last couple of quarters, with the changes to the PTC, this is important that we, together with customers, can do those calculation and order intake correctly. Positively here in the quarter is also Asia Pacific.
A progress in terms of order intake, as you will see, up 281% compared to probably what is a little low last year, but very pleased to see overall. When we look at the service business, as mentioned, 100 GW, a big milestone, and therefore also congratulations to the service business because you have really executed not only on the order intake, but also more than 10,000 colleagues delivering under very challenging conditions. Highlight of the quarter, we had sort of the first AOM 5000 service contract in the U.S. for the new EnVentus turbine. We have taken a number of multi-brand contracts across Asia Pacific, especially on the Senvion turbines, of which at least some with larger duration.
Overall, we have approximately 70% of our order intake has a tenure above 20 years, which now leads to that we have a service backlog that is above nine years, which of course gives us a very strong foundation for future development of the service business. We just in the bottom here show, which is quite impressive, show the comparison against where were we in Q2 2019, where you can see the increases in gigawatt in both Americas, EMEA, and APAC, and very pleased with overall development there. When it comes to the offshore, again, a normal quarter, and we have seen here, as you would expect, the firm order was signed on the 1.1 GW Seagreen project in Scotland. That included a 15-year service agreement as well.
We have completed the Northwester 2 installation. We are well under way in installing the Borssele project also. It is already also now partly in production of electricity, which is of course very positive. We have completed the third and the final floating turbine into the WindFloat Atlantic project, which is off Portugal's coast. Of course, that again demonstrates our commitment to also keep innovating into the foundation towards floating offshore. Else in the bottom, you can see what other projects we have in progress. I don't think there is any major news to that. I want also just to mention here, we are the first wind turbine manufacturer that have the validated strategy in line with the 1.5% global warming scenario according to the Paris Agreement.
We had that validated from Science Based Targets experts in the quarter, which especially is around our Scope 1 and 2 emissions, which is carbon neutrality towards 2030, as you know. I also think here importantly is a lot of debate, how do we then go around it? You will see so far since 1st of January announcement, we have now changed more than 100 electric service vehicles, and we will both have service and benefit cars when we come towards the year-end, somewhere around 300 cars in total. It does actually make a change and also an effort to demonstrate and put some commitment to it. If you are interested, please read page 15 in the quarterly announcement, where you can read more about our other initiatives and also the progress, which we can only highlight and positively describe here. With that, I would hand over to Marika.
Thank you, Henrik. On the income statement, clearly you heard Henrik and the high activity level that we've had here in Q2 of 2020 despite the COVID-19 situation. As a consequence, and a very good job done by the organization, the revenue has increased with 67% compared to Q2 of last year. The gross margin is down, as well as the EBIT, primarily by the increased warranty provision performed here in Q2. I will come back to that. We also saw a negative impact from COVID-19 here in the quarter. You see that EBIT, as I said, is also down compared to last year. Bear in mind that the underlying EBIT margin before special items is in line with last year and actually coming up to a 5.9% here in the quarter.
Altogether, very good activity level, also good leverage on the SG&A, as I will show you later. The SG&A cost continues to be well under control. If you compare to last year, we are now on a 12-month rolling, down to 5.7 percentage points compared to 7.2 percentage points in Q2 of last year. The depreciation and amortization, excluding the impairments that you have seen, increased year-over-year, primarily due to the new products that we have introduced, and as well, already highlighted by us. If we go to the service business, also continues good performance, as you heard from Henrik. We saw an increase in the service revenue by 6% compared to Q2 2019, and an EBIT margin of 28.5 percentage points here in the quarter. Obviously very solid and good performance in the service business, and also considering here that we are in a COVID-19 environment.
MHI Vestas, we see a negative profit of EUR 12 million. Our share of that profit is obviously EUR 6 million. Again, anticipated, because we anticipated a low activity level here in 2020 for the offshore business. Primarily what you see here is really the aftermarket activities performed. The change in net working capital, you heard me say that before, that we continue to use the balance sheet to actually have a higher inventory than what you have seen previously. This is also a factor here in Q2. The contract assets and liabilities are also increasing. As a consequence of the high activity level, we see that payables are also getting up to a different level. I will come back on the consequences on the cash flow here in the quarter. Cash flow statement.
The cash flow from operating activities is a good EUR 296 million. Obviously up compared to last year. You see the big impact from the change in net working capital to actually be able to accommodate the overall high activity level anticipated here in the second quarter. The free cash flow before financial investments are more or less in line with last year, despite the high change in working capital. We come down to a negative of EUR 78 million compared to EUR 75 million last year. The total investments are down compared to last year. This doesn't mean that we don't continue to invest in our business in terms of accommodating both for high activity level and new technology.
You remember that we also took off one product line here, or a platform, in the last quarter, and obviously that also have an effect here in Q2 when it comes to the net investments. Warranty provision and the low production factor. You see here that we make an extraordinary provision of EUR 175 million here in the quarter, and also making the 3%, or to be correct, 3.1% in the quarter. We have all in all EUR 283 million, so a much, much higher level compared to last year. Obviously that has an impact, as you have seen before, on the gross profit as well as the EBITDA. The LPF increased as a consequence of this extraordinary repair and upgrade level, so we are now above 2% here in the Q2. The capital structure, net debt to EBITDA, we are well below threshold.
I don't think it's any surprise that this continues to be a very high focus from Vestas, and we continues to be in a good position. The liquidity position remains very strong when we have close to EUR 2 billion cash at hand at this point. By that, I leave the word to you.
Thank you, Marika. That leaves us with discussing and putting, as we said here, reinstatement of our guidance for the year. Before we take the numbers, I just want to highlight here, it goes without saying that as we are in August, as some 142 days to go in the year, the important note here is that the basic assumptions does right now come with a higher uncertainty than normal, because we are still in the middle of it, and we talked about the epicenters of COVID-19 around the world. However, as we also have the increased visibility of the year, we now guide for a revenue that is the same as we initially said in the beginning of the year, EUR 14 billion-EUR 15 billion. We have an EBIT margin before special items of 5%-7%.
Please, however, take a note of that that does include the extraordinary warranty provision of EUR 175 million. As Marika rightly went through here, on the total investment side, where we, due to the initiatives we have taken early in the year, we now say it's below EUR 700 million. With that, we will end the presentation here and give the word back to the operator and Q&A.
Thank you. If you would like to ask a question, please press zero one on your telephone keypad. We ask you to kindly limit yourself to two questions at a time. Our first question is from Kristian Johansen, from Danske Bank. Please go ahead.
Yes, thank you. My first question is on U.S. deliveries, which was obviously very strong here in Q2. Can you elaborate a bit on what we should think about the delivery schedule in the U.S. going forward, especially how customers have reacted to the option provided by the IRS, which enables them to sort of push volumes from 2020 into 2021, and then still receive the 100% PTC level?
Thank you, Kristian. I think a very relevant question. As we said here, a lot of our focus also goes to the U.S. and the timing of it. Very pleased to see the progress we are making, a lot more is still to be done. We are tracking that down to both days and weeks. It's also fair saying our discussion with customers are generally that no one, if they can, would postpone to 2021 if they can avoid. In reality here, the commitment to a partnership here is that it's profitable. It's profitable from when it's commissioned and delivered, therefore people would like to stick to as early delivery as possible. As you can also see on our guidance, we are back in also getting most of that done, which we can, in that normal schedule we have.
Okay. If I may just follow up, how about the discussions around the projects which has 80% PTC, which you can then postpone into 2022? Is there any delay in those discussions, or is that progressing as planned as well?
I think there's a lot of those debate going on. I think we've been open. Last quarter, I think we were. Previous quarter, we were. We have to appreciate here, around year-end, we got the extension. Then we got a 2020 and 2021 possibility later in this year. I think right now there's a lot of those discussions going on. As you would appreciate, whether you have 100% or an 80%, it is still profitable for customers to do. Now it's the schedule around how do we get into the schedule. What does both the projects but also permitting and, of course, our capacity allow people to generally do. Kristian, you'll appreciate both 100% and 80% PTC projects are profitable for the customer.
Understood. Thank you. My second question is around this warranty provision. In past couple of quarters, you've also increased warranty provision, sort of reflecting new technology. To what extent have those past increases reflected the specific issue which you highlight as an extraordinary provision here? Hence, is the total cost of repairing these blades actually more than the EUR 175 million?
You will appreciate that a provision like this doesn't come, and the root cause doesn't come in one go. We have, over the last couple of quarters, looked in. It's a robust process around it. Of course, part of what we have been doing in the previous quarters have been to also look into this. For us, that has affected the previous quarters to some extent, but we are now just saying here, knowing the root cause and also the specific repair and upgrade of it, that means we can now say that neither current or future blades will have that requirement going forward. Therefore, we can then do the final one-off provisioning for the blade issue here.
Okay, I understand. Can you quantify the total cost of this specific issue then?
That you would appreciate, we don't share in that sense. That is an ongoing discussion between us and also our customers and owners of the assets around the world. There, we do this as we would normally do in any of our warranty or CIM cases. We don't do that breakdown.
All right. Fair enough. That was all for me. Thank you very much.
Our next question is from Claus Almer from Nordea. Please go ahead.
Thank you. Yeah, also a few questions from my side. The first question goes also to the extra provisions you did in Q2. Will there also be an impact on the service division in next year, for instance, as some of these turbines are not living up to their up-and-running guarantee? That would be the first question.
No, we don't expect that, Claus.
Okay. Looking at the lost production factor, excluding these blades issues, is the remaining contracts down to 2%? How is the underlying level?
I think it's fair, while you are answering the question yourself almost, we are at a normal level, we are around the 2% apart from this extraordinary provision that we make here in the quarter.
Okay. My second question goes to the EBIT margin or the gross margin. If you look at the power division, excluding these one-offs, then the gross margin is still, I guess, below 10% for the power division. Is there any other significant extra cost into that number, and what would it take to lift it to be double -digit, at least?
I would say if you look at the gross margin, obviously the biggest impact in the Q, what you see here is the warranty provision. Also remember, compared to last year, we actually already with 3.1% have a higher warranty provision as a comparison. Obviously that is part of the explanation. We have extraordinary cost or COVID related cost that has an impact here in the quarter, and as a consequence on the gross profit. Running the business in an environment that we're in right now, obviously is not free of charge in any shape or form. We see extra costs in particular for the transportation and the logistics, for the turbine operations.
It is mainly the latter that is taking down the gross margin below 10%, even when we exclude the provisions?
I would say yes, all of that in summary is having an impact on the gross profit for the Power Solutions.
Okay. Thank you so much.
Thank you.
Our next question is from Dan Togo from Carnegie. Please go ahead.
Yes, thank you. Maybe this question fits bit into your answers for how you just answered, Marika, because I would like 1% a little more than 1% is this warranty provision. The latter amount of the remaining part around one percentage point, can you give some wording what that is underlying? I expect it has something to do but with what you just said, Marika. Please give some words on the guide. Thanks.
Obviously the 5%-7% that we're guiding for is as a consequence of the warranty provision that is high, also the COVID situation that we're in altogether. Obviously if I compare to last year, and you also have an impact, we don't have any extraordinary income from development projects that you saw that has a big impact last year. The two major is really the extraordinary warranty provision and the COVID-19 situation. That's why we have taken down the EBIT guidance for the full year.
Okay. Another question on the warranty provision, EUR 175 million. Is this how you will consume that going forward? Will that be, any way sort of say, hamper or have negative impact on how your activity would otherwise have developed? Do you need to dedicate a lot of resources to this? Thanks.
Well, I think Henrik said that earlier as well. The process we go through when we provide for the warranty is by no means random. We have a process that we have followed altogether. We also made a thorough investigation in terms of coming up with the EUR 175 million. Obviously we know exactly what we're talking about and what it's relating to. I think what is very important is that the current blades and the forecasted blades going forward are not impacted. It's a big number of blades and therefore the high amount of EUR 175. That's clear. Obviously as we're guiding for the same activity level as our original guidance, we're talking about EUR 14 billion-EUR 15 billion. We obviously see that we can do the two in combination, and I think that is the most important thing to highlight.
What you highlight also here is that this stretches for at least maybe 18, 24 months. It's relatively long period that stretches into 2021 as well.
No, I think that is more your assumption. We don't do the forecasting for next year. Obviously what we're talking about now is the full year for 2020 and the activities regarding warranty is included in that guidance.
It's probably fair, Dan, if your question is what you should do and the consumption of it, then of course, yeah, it will run over the coming quarters and into next year for sure.
Okay, thanks a lot.
Thank you.
Our next question is from Gael de-Bray from Deutsche Bank. Please go ahead. Gael, do you have?
Oh, hello. Sorry. I was on mute. Sorry for this. Good morning, everybody. Can you hear me now?
We can do.
We can.
Hello? Okay. That's great. Thanks very much. I have two questions, please. The first one is on the so-called COVID related expenses. Could you perhaps put a number on these? That would be great if you could quantify these higher expenses which could possibly gradually disappear over time. The second question I have is on the offshore strategy. Could you give us some kind of update here? Are you happy with the current performance of the joint venture? Are you still comfortable with the current situation, with the status quo, with MHI? Thanks very much.
Okay. Your question regarding the COVID-19 impact in the quarter. We have, from the beginning of the year said, or when Q1 in reality, said that we're very strict on how we calculate the COVID-19 direct impact. What we have come up with here in the quarter or Q2 of this year, it's a EUR 20 million impact from COVID. Obviously you will have an impact on some delays on the revenue side, and obviously that has also an impact on the EBIT. Direct cost impact from COVID-19 is EUR 20 million here in the quarter.
Yeah. If I should just comment on our offshore strategy, I think, it's a question we have, we comment on it, and we are very pleased with the progress we are making in offshore. Very happy with the joint venture set up, and in a quarter like this where we have both orders and also fully into installing further projects. I think it's fair saying also a big thank you to our joint venture employees that has worked hard in this quarter. No change in our attitude of that. You know from our strategy, onshore, offshore, and service are the three vital sort of strategic legs of our strategy.
Okay. Thanks very much.
Thank you.
Our next question is from Akash Gupta from JPMorgan . Please go ahead.
Yeah. Hi, good morning, Henrik. Good morning, Marika. My first question is a follow-up on this warranty provision. Can you elaborate when these turbines were originally sold and which turbine models does these provisions cover? This blade issue, was that a design issue, or was that a serial production defect that you find out after installing the blade?
What we'll say here is, first of all, it's as you will respect, it's a commercial discussion back to customer, and also to where it's specifically related to a number of confined spaces in and around the blades here. It relates to what we also call high intensity lightning, and therefore, that's what we are working diligently through. It is a limited number of model of blades, and therefore, we are addressing it, in reality, customer site and turbine by turbine in this sense.
Thank you. My follow-up question is on EnVentus turbine. If you look at your Q2 large orders, then share of EnVentus was, I would say, rather low. This turbine, I think it's been quite a while since you have launched it. The question I have is that, by when do you expect that majority of these large orders that you announced will come from EnVentus? Could it be possible by this year, let's say maybe by Q4, based on your pipeline, or do you think it will be likely in 2021?
I think it's, again, here, it's a normal and typically ramp-up. We have the prototypes up there. It's gone into serial manufacturing now, during the course, especially the course of second half of the year. That works to plan. Therefore, as you see, number of both current discussions, you've also seen we have taken some orders. There are more to come. I think here, it's a gradual ramp-up, both in order backlog of the EnVentus. In reality, quite pleased with it, Akash, at the current stage.
Thank you. Maybe a quick one for Marika. Shall we expect any impact on next year margin because of some delays to projects? I don't know how it fits in your P&L, but let's say if you have a project where you account for revenues and cost at the completion of projects, and if that project has some cost overruns, then how that will hit to P&L? Will it be hitting this year or next year?
Well, what you can potentially expect for this year is that we can have some slippage from Q4 into Q1 of next year. I think we have also provided the guidance of EUR 14 billion-15 billion. Obviously, we have a positive view on the remainder of the year. As Henrik said earlier, no one has a silver bullet on the COVID-19 situation, so there's nothing we can guarantee. So far we've done a very good job to accommodate our global presence.
Thank you.
Thank you.
Our next question is from Supriya Subramanian from UBS. Please go ahead.
Yes. Hi, good morning. Thank you for taking my questions. First one is again, related to sort of the impact from the current COVID-19 situation. I appreciate that you cannot specifically quantify the cost or the impact on costs in this quarter. How do you see that, and I know things are still quite uncertain, but given the current situation, how would you see that progressing through the remainder of this year? Also maybe related to this is, has the company taken any specific restructuring measures to suggest to garner some short-term savings, and if so, is it a potential reversal of this or are there some long-term savings plans which would offset this?
Okay. I hope I understood your question, Supriya. The COVID-19 direct impact on our cost this quarter is EUR 20 million, and that is to be compared with EUR 10 million in Q1. Obviously we have calculated, as we've given you the guidance now, we have calculated for a COVID-19 situation to continue throughout the year. Obviously no one, as I said earlier, have the silver bullet in terms of how the situation will pan out. As we're giving a guidance for EUR 14 billion-EUR 15 billion here for the full year, obviously we feel confident that we manage well in the circumstances that we are in. What we have sort of said from the beginning is really when it comes to COVID-19, we shouldn't use that as an excuse and blend it too much. Obviously you see impacts on suppliers, on transportation, on the overall logistics.
What we are calculating is really the direct cost when it comes to COVID-19, not impact on our ability to supply to our customers. I think that's the best that we can give in our view on the COVID-19 situation. I don't think anyone has a silver bullet. I think during the circumstances we are managing well and handling and dealing with the situation.
Right. Got it. My second question is more related to the offshore business, and there in terms of the competitive positioning of MHI Vestas versus the competitors. We know that GE has a 12 MW, Siemens has of course, recently launched the 15 MW, 16 MW turbine. MHI Vestas right now just has the 10. Do you think there is some technology that's lacking? Basically, would there be need for an influx of investments to ramp up the technologies there that the joint venture would need to now effectively compete in the market?
Thank you for the question. I think there it's obvious, and we've commented that on a number of times. If and when we feel that there's something new to comment on the product roadmap, we will do it in a proper terms and not as an extraordinary thing under the quarterly investor here. We follow it very closely. We also follow the discussion with our close partners here, and as you would appreciate, both in terms of project life cycle and product life cycle, we have a longer life cycle in offshore and we are fully aware. We are very aligned in the joint venture with our partner, MHI, and of course we will be evaluating that also for the quarters and the years to come.
All right, great. Thank you very much.
Thank you.
Our next question is from Martin Wilkie from Citi. Please go ahead.
Yeah, thank you. Good morning. My first question is on service. Another very strong quarter, but I see you've kept the 25% margin outlook. Given that last year we saw a lower margin in Q4, is that sort of seasonality what you'd expect? Effectively, is that the sort of new pattern for profitability that we expect a sort of first three quarters quite strong with Q4 a little bit weaker margin? Or is your 25% effectively a floor given the strong margin you've seen in the first half? That's the first question. The second question was just on cash flow. I mean, obviously an inventory build perhaps as we'd expect. Obviously looks like we're setting up a very strong second half. Is most of that inventory build to be unwound during the second half, or are you already building inventory for expectations of a strong 2021?
Thank you.
Okay, Martin. On the service side, I think it's fair saying that there will be variables and there will be deviations within the quarter. You can't really sort of use a 2019 pattern to say that there is an uneven spread of quarterly profitability and others. We will take that quarter -by -quarter, and therefore when we say it's approx. 25%, I always highlight both in terms of the organic growth and the EBIT here. Let's just appreciate that every percent on that business is EUR 20 million in round terms, which easily in a business that has more than 10,000 employees, deviates. Allow us a little bit of wiggle room around when we say approx 25% in the EBIT.
It's nice to see that they are going through the year, especially as you would appreciate, come on, these guys, colleagues out there, they are having a really tough time in getting all of this done under very challenging conditions considering you have to be in the field every day. We really appreciate that. Allow us the wiggle room around the approx 25%.
When it comes to the cash flow, and obviously your assumption on that, we're building for the high activity level that we anticipate here in the second half, considering the EUR 14 billion-EUR 15 billion that we are guiding for is absolutely correct. Yes, we have a very strong order intake, and we also have a very big order backlog that we have to fulfill. The only thing I can say is to not sort of guide for next year is that, obviously, if we have a high activity level in Q1 of next year, yes, we will most likely have to start building already in the latter part of the year. The anticipation now, if I look at the overall inventory that we have at this point, we obviously are expecting a big part of that to be consumed now in the second half.
Okay, thank you. That's very helpful.
Thank you.
Our next question is from Rajesh Singla, from Societe Generale. Please go ahead.
Yeah. Hi. Thanks for taking my question. I have a couple of questions. First one would be if you can comment a bit on your Asia Pacific strategy, given that your order intake in Asia Pacific region has been quite strong during this quarter as compared to your peers. If you can just comment on where do you see and what kind of strategic moves you are making in that particular region to gain more market share. The second question would be on the warranty provisions. How confident are we that we would not be seeing these kind of warranty provisions going forward in the future on our latest turbines?
Okay. First of all, thank you for your questions here. I think on the Asia Pacific strategy, I think nothing has changed. I think here, when we comment on it quarter by quarter, some quarters, I think it's fair saying when we look at it last year, we also said, probably not particularly impressed with the order intakes where we didn't succeed in taking orders. Therefore, in this quarter, it's really nice to see that it's spread across countries like Vietnam. It's also Japan. There's some China. There's some Australia in there. Couple of those markets are longstanding markets where we are having an established position, which is really pleased to see that we are still strengthening the existing position.
In a couple of markets, I would here say Vietnam and China particularly, it's really nice to see that the teams are following the strategy where we will be a material player in those markets. We have an understanding of what's needed in the solutions, and therefore, it's nice to see that, especially in Japan and Vietnam, we can actually see that there is attraction from the local customers wanting to do more projects. Here, and as we have said, commented on the previous quarters, we are also following the same process, same discipline around profitability thresholds and targets. That's nothing in reality and else than positive for the quarter. When it comes to your question around how do we not see this? I would talk differently to that.
We have a several decades-long history in being a technology and quality leader in our industry, and we have no absolute aspiration to change that vision. Therefore, we are also just saying it upfront here. There is a thing we need to address. We will address that, and then we will do our normal robust process when we look at it. That's the way to comment on this, and this is more us taking the responsibility and make the repair and upgrades in an area where we can now say current and future blades will not be affected by any of this.
Okay. One more follow-up question in terms of the onshore wind market. Given that onshore wind energy has been the most competitive source of renewable energy, it's highly competitive versus other sources of energy. How do we see the R&D cost trending in the coming years? Are we going to see some decline in R&D cost that we are already very competitive versus fossil fuel and other energy sources? What is the further scope of R&D in the onshore energy? Can we go to, say, 7 MW, 8 MW, or 9 MW turbine in market?
Obviously, we cannot comment on the future development. I think it's fair to say that we have an ongoing focus on being the technology leader, and obviously, that will require investments also going forward. I also think it's fair to say that we see here now, as we have come up with quite a number of new products, that you will see a slight decline in the R&D in the foreseeable future. The focus is there, and we will for sure not jeopardize the technology position that we have.
Sure. Thank you.
Thank you.
Our next question is from Sean McLoughlin from HSBC. Please go ahead.
Good morning. Thanks for taking up my question. Firstly, just on service, I wanted to understand, was there a positive mix impact in the second quarter if site access restrictions maybe led to more remote service? How that mix might pan out in the second half. Secondly, on cash flow, how far below the EUR 700 million CapEx figure do you think will come out in 2020? How much, again, is due to the optimized product portfolio, and how much is effectively lower CapEx due to a general precautionary measure? What's your current position on buybacks in 2020? Thank you.
Good morning, by the way. That sounds very much in a couple of questions in excess, but that's okay. I would just say, no, there isn't any change, and there is no change in structure to the service business. We don't see any of that, Sean. I think that's the one. Then, I think Marika will address CapEx. The buyback, we always say, listen, with where we are at the year, we will always consider it, but we're also saying this year, with still the uncertainty and the caveat we put to our guidance, it's fair saying, we will look at that when we are further into the second half of the year.
If we come back, I think you mixed a few items here. If we look at the CapEx and below the EUR 700 million that we're guiding for, obviously we see an impact on the fact that we actually ceased the development on one of the products, actually in this quarter. That obviously have an impact. If we're taking any other measures to be sure that if we are within reasons when it comes to CapEx and not jeopardizing cash flow, I would say put it differently, Sean. We're obviously doing what it takes to run the operations and fulfilling the requirements towards customers. As you see, we have a very high order intake, and we have a new product that needs to be fulfilled, and we will obviously do that. The only thing I can say, we're always cautious about cash. That will continue.
Again, we will not jeopardize our position in any shape or form. The only thing we have said so far, not to be too precise, is that we are below EUR 700 million for the full year of 2020.
What might be, just thinking of that portfolio optimization, is that something that we can extrapolate to future years?
What we have seen. Now we are at a high level when it comes to the overall CapEx because of new product introduction as well as investments in capacity. You have seen it previously, in particular molds. What we have said going forward, a normalized CapEx level could be around EUR 500 million if we don't have all these new products coming out. It will also depend on the overall activity level you see in the market and the demand that we have from the customers. That is the situation. Let's say that a normal situation is anything between EUR 500 million and EUR 700 million when it comes to CapEx.
Thank you.
Thank you.
Our next question is from Casper Blom from ABG. Please go ahead.
Thanks a lot. First of all, congrats in reinstating the revenue guidance. That's truly impressive. Two questions from my side. First of all, last year you had all the trade tariffs impacting your supply chain. This year, COVID-19 is adding to those challenges. Given that, are you considering sort of any major changes to your supply chain, the way you do sourcing, or is it more sort of happy with where you are? Secondly, on the order intake ASP of 0.78, I think that sort of leaves us with pretty much three years in a row where the ASP has been hovering around 0.75. Given that there are constantly technological improvements, is this really sort of a sign of the industry being able to increasingly hang on to those improvements itself rather than passing it on to customers? Thank you.
No, thank you, Casper, and your thanks to be shared here with a much wider team of Vestas. I think on the supply chain, I have to say, it's difficult to sit here and have an idea of that you have to do any radical changes coming out of a quarter where we, together with everyone that works together, also on the external side with Vestas, have been able to do another manufacturing and shipped in excess of 4 GW. In total, we are nearly at 10 GW for the first half of the year. I think here it's much more the closeness and how people have been able to execute on that one. Clearly, if we look across it's not the easiest place to be, being a global manufacturer. You cannot be a global, mature industry and not having a global footprint.
I think we have done a lot really well here. Therefore, we will always search, we will always optimize. You have seen a number of our initiatives, and some of those initiatives you can also see from our guidance. Of course, the phasing in of some of those initiatives will benefit us in the second half of the year to a larger extent than they did in the first half of the year. I think we are doing everything we can in all the initiatives we have to, over time, progress towards the 10% mark, which we have said and we still stick to. I think your comment on the ASP, we like stability in the ASP. We also fully appreciate it deviates quarter -on -quarter.
I will say, I won't comment on the industry because I think your try to do a conclusion on behalf of the industry indicates that you're a long way away from right in terms of looking at the variances in profitability in the industry. We try to do what we can to both deliver the value to our customers, and at the same time, also getting a decent profitability in, which it seems like we are succeeding doing.
If I just may follow up on that last thing, Henrik, would it still sort of be a fair assumption to have that due to technological advances, the levelized cost of energy would come down over time, and thus in theory, the price per megawatt would also come down? When it's not coming down, it gives you an opportunity to capture a larger part of that improvement and put that into your profitability instead.
I won't negatively argue with that one, Casper, because that's the whole principle here. You will also appreciate here, number of changes across the world in the last three years, and there will also be in the coming years, where you will have to find more efficient solutions to deal with also that a couple of markets are actually falling out of, for instance, feed-in tariffs and other. I think it has to be a combination of the two. As we both appreciate, ASP is a super good measurement, but you will also accept in there are quite a lot of variations, both in terms of location, geography, and scope of it. We say it here with a smile. We're positively over it.
We like the stability, and if we were to increase it, we would also do that, because it's all on our way to get to the 10% EBIT.
Appreciate it. Thanks a lot, Henrik.
Our next question is from Frans Høyer, from Handelsbanken. Please go ahead.
Good morning. Thank you very much. Question around the warranty cost in the second half of 3.1%. What was that number in the second half last year? Could you also talk about the progress and momentum in the DSV Panalpina collaboration? I guess it must be around now that you start to see some real traction there, and what sort of scale of benefits do you expect from that in the second half, please?
Okay. If I answer your first question on the warranty side, if I compare to Q2 of last year, the underlying was 2.5% compared to the 3.1% that we're expecting for the full year, and also doing here in Q2, and on top of it you have the EUR 175 million.
Yeah. In the second half of 2019?
Okay. We're expecting the same 3.1% for the full year this year.
As it was in the second half last year? Okay.
Correct. 2.5% in the second quarter last year, to be precise now. Second half of last year.
Yeah.
Okay, your question about.
Yeah.
Okay. Sorry.
No.
Okay, fine. In terms of DSV, as we said all along, we are phasing in the DSV partnership, and we are going to do that project by project. You will also appreciate that in a lot of cases where you have had projects scheduled, especially on the outgoing here, which means from factory to site, there the projects are taking over and it's phased in. Fully operational when we get into fourth quarter this year. Neither DSV or we have said any numbers to the benefit of this. We are working absolutely diligently, both on the inbound and the outbound, to harvest as much as we can from the partnership. Pleased with the progress, and then when we get into fourth quarter and therefore also the full year, I think it's easier for us to comment a bit more on how far we have come.
Thank you very much.
Our next question is from Katie Self from Morgan Stanley. Please go ahead.
Hi. Good morning. Thanks. Here's my question. I think a couple of things have been answered already, just a quick one really on the service business. I wonder if you could discuss, is there any margin differential between the service contract on Vestas turbines versus those that you've secured on the multi-brand? I guess I'm wondering what's the main competitive point around the multi-brand. Are you having to compete more on price versus your peers, or is it very similar to the Vestas brand? Thanks.
I think, Katie, what we have said earlier is really that it's primarily the scope of the project that define the profitability. When I look at the Vestas brand, we have a very high scope. The vast majority is the AOM 5000. Obviously there you have a higher profitability because you also make more commitments under those contracts. In the multi-brand, if I generalize, it's a bigger volume, but it's also a lower scope and lower complexity, therefore you have a lower profitability on those. That is really because of the complexity and the large volume that you're anticipating under the multi-brand contracts. Also under those, you have a mix. It's not only low scope contracts, you would see a higher scope contract as well. That would be treated in a similar way as the Vestas brand.
Got it. Thanks.
Thank you.
Just a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. Our next question is from Mark Freshney from Credit Suisse. Please go ahead.
Hello, good morning. If I could ask a question, if I may, bridging previous guidance to the current guidance. It would seem, given revenues haven't changed, it would seem there's an expectation of about EUR 290 million lower EBIT now than under the old guidance. We know EUR 175 million of that pertains to warranty provisions. We know EUR 30 million cumulative pertains to COVID costs in the past. What does the other EUR 100 million pertain to? Is it expectation of COVID costs in H2, or is there something else going on in there? Secondly, my question for you, Henrik, is that, in your conversations with customers, the Green Deal is coming, but there's not really any granularity surrounding that. Capital is still very cheap, but consenting has been delayed by COVID and other issues. What are you hearing, when you sit down with your customers on their plans?
Are they frustrated that they can't move ahead with new projects, or do they have more opportunity than they can manage?
Okay, Mark. If I start with the overall EBIT guidance for the full year and the difference, compared to when we guided in February. Obviously, the EUR 175 million is part of the 5%-7%, and you also have COVID impact on that. Those two are the biggest items when it comes to the deviation to the 7%-9% that we put forward in February.
Okay. In terms of the Green Deal, I think on the general, I think Green Deal is, as we always speak about, is Europe. I think as you would appreciate me saying in a quarter like this, we've taken 4.1 GW of orders across 18 countries. The truth of it is, in the previous quarters, I think it's fair saying everyone are fully dedicated, fully on board, trying to do more projects. I think underlying, which is probably even more important, Mark, is that the trend, I don't think we have seen maybe bar some initiatives in Mexico. Otherwise, the whole world have, in reality, put forward either structures or ideas to further accelerate the green recovery as part of coming out of the COVID-19.
I think here, it is much more for any customer now to say, as you are rightly saying, access to capital is not limited, despite the COVID-19 and the financial and economic, you can say, recession-like conditions. At least here, the access to the capital is there, and also the capital available from customers, utilities, and global asset managers, infrastructure funds, have probably never been bigger than it is today. We generally see right now a different conversation. It is more like an acceleration, and then, of course, also being ready to take further advantage of these structures. You have seen, for instance, a new country like Vietnam suddenly extending their policies and other. There is a lot of countries that will come up as new countries, positive markets for Vestas to compete in the future as well. The glass is more than half full.
Okay. Our next question is from Ben Heelan from Bank of America. Please go ahead.
Hi. Morning. Thank you for taking my question. I think coming into this set of results, a lot of people were anticipating that COVID-19 would have an impact on revenue this year, and there would be some delay of revenues from 2020 into 2021. Obviously, the guidance you've given today implies that your ability to install and recognize revenue this year isn't actually going to be impacted by the pandemic at all. Do you have any initial comments or initial color about how we should be thinking about volumes and revenues into 2021? My second question would be on repowering demand. Could you give a little bit of color on where we are in terms of repowering demand from the various regions? Thank you.
Okay. I think on the guidance, as we shortly touched upon here, I think us, customers, anyone who works together with us will all have the same interest in trying to get things done as quickly as we can. In reality, when we look at it, we don't sit and plan now for a carryover from 2020 or 2021. We try to get as much we can executed in 2020 accordingly to the plans. Some then comes with either new things and maybe even projects that can be advanced against maybe one or two delays in other things. Generally, I think it's really a gratefulness to the team and to the customers understanding of the conditions we are working under, that we are able to stick to a guidance within EUR 14 billion-EUR 15 billion for the full year. We are, as I said, here.
We have a good visibility to it, bar, of course, also with the challenges that will clearly also come from time to time in the second half of the year due to the COVID-19. I have to say, I actually forgot your second question.
Repowering.
Repowering. I think the repowering across the world, it's picking up. We see repowering in the Americas, especially in North America. We also see repowering in Europe because with the technology development we have had in the last decade, it's obvious very attractive to do that. We will also start seeing repowering. There is a conversation now also, for instance, in countries like China and others, where we will start having an attention and a focus on the repowering from those. In terms of actual volumes, U.S. and Europe predominantly.
That's great. Thank you.
Our next question is from Lars Heindorff, from SEB. Please go ahead.
Yes. Morning. Thank you for taking my question. The first one is on the supply chain cost. We haven't been talking too much about those this year. I think last year you mentioned that it was around about EUR 150 million. The question is, by now, with the tariffs and the trade situation, which appears to be a new normal, have you adapted and changed your supply chain to what might be a new normal? Could we see that the supply chain costs perhaps go down going into next year, given a sort of a more stable situation? I realize, of course, that the COVID-19 still is cause for some concern and uncertainty on that part. That's the first one.
As I said, comment on that, I think we said all along that we will do. Positive is there hasn't been really any changes, but that also means there haven't been any changes for the better. That means we are simply just adjusting and saying, "This is the conditions we're working under." You will also see in our guidance for the second half of the year, we are leaning into that second half of the year and the execution of it, where we are taking advantage of the supply chain. In reality to that, you can probably assume that that runs into, and you will have to assume because no changes to it, runs into 2021.
As you would also appreciate here, if we just look at our both facing and also execution of it, we are making constantly effort to improve both synergies but also efficiencies within that supply chain.
Okay, thank you. The second one is on, still going back to some of the warranty provisions and related to the EnVentus platform. You have seen sort of a gradual increase of the warranty provisions, leaving aside the EUR 175 million, of course, over the past many quarters, and you've been arguing that launching the new EnVentus platform is part of the reason. When will we see that the warranty provision related to that new platform will start to decline, i.e. when are you up and running at a point when you have the certainty and visibility that you believe that it will be safe enough, you can call it that, to lower those provisions?
I think, Lars, here, I'll probably say safe enough, and I think we are mixing things here. There isn't any increased warranty provision as such to an EnVentus platform or whatever. What we have said here is that we work diligently, and when we introduce new things, we will always provide prudently for it. As also Marika mentioned early on, if we bar the issue we have had here around the warranty set aside to the blades, then we will return to normal levels of provisioning as well as you have seen. That varies. Over time, you have seen a warranty provision between 1.5% and 3%, and that's what we are saying now, that it will remain in that, but also return to more normal levels in that range.
Okay. Thank you very much.
Our next question is from Jakob [audio distorion] from [audio distortion] . Please go ahead.
Hi. I have a couple of questions. First of all, a couple of your Western competitors have talked about orders being pushed into the future because of the COVID-19. Is this anything that you've experienced?
First of all, Jakob, I would just suggest that this is the last questions we are taking, not your last question, but you are the last person. As I said here, Jakob, on the order intake. We released 4.1 GW. If we had been able to take more, we would have taken more. We haven't pushed anything into other. Customers generally signed up to what it was here. As we said, when we did the Q1, we will continue to push on, therefore that's also the message for everyone here. We're in Q3 now, we continue to push on, both in terms of order intake and also delivery. We don't hold back.
Okay. My last question. What is your view when you look into what's happening in the world right now, electricity auctions, are there any meaningful disturbances and postponements that could bring us to quarters of pockets in the order intake?
I think you probably have to accept right now that there can be quarterly delays in terms of auctions, which naturally will come. Some countries push it a quarter ahead. Generally, I will say it seems like we are in a position where business as usual. There will be one or two countries that have pushed it a quarter, and we will live with that. As I said, in the bigger scheme of things, I think we will then end up having discussion point that we might end up having a shorter lead time to put the projects up, which then maybe comes shorter than the normal 18, 24 months. Not really that.
I think as we spoke about early on, when it comes to the PPA and others, there can be some stress in some local markets to get PPAs currently, but that's not different to any other aspects of this world if you are forced to ask for hedging of something when macroeconomics are stressed or difficult.
Okay. Thanks so much for your answers.
Okay, that then concludes. With that, thank you so much for your attention. I know we'll meet quite a number of each other over the virtual room, so to say, over the coming days. Look forward to that, and thank you for your attention to the investor presentation.
Thank you.