Good morning, everyone, and 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 Q2 of 2020. And with that, I would just like to take you directly to our key highlights. So in Q2 '20, we had strong performance in, again, challenging environment, and we have gone through this without having any received any state aid in any of our countries.
Revenue was €3,500,000,000 It's up 67% compared to the Q2 in 2019. Our ore intake continued at a very high level at stable pricing. So we took 4.1 gigawatts of ore intake in the 2nd quarter. It also leads to an all time high backlog of in excess of €35,000,000,000 In terms of the EBIT margin, we had an underlying EBIT margin of 5.9 percent that was impacted by an extraordinary warranty provision of €175,000,000 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 service in Q2 organic growth compared to Q2 'nineteen and an EBIT margin of 28.5 percent.
Today, we will also give a bit more details of our sustainability. So 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 we actually gone through the Q2 in terms of the COVID-nineteen 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. And 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-nineteen broke out in February in China.
So 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 toward COVID-nineteen in the societies. But we also have to appreciate epicenters right now are still Americas, it's India, South Africa. So 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 Q2 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. But I think nothing better speaks to the evidence of that we in first half of twenty twenty, we manufactured and shipped 9.6 gigawatt, which is up 60% compared to the same period 2019. And of course, this is the underlying also support to come out and reinstate our guidance for the year. So we then go to the Q2 order intake.
As said, 4.1 gigawatts. 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 then look at the ASP, very stable, remained stable also throughout Q2, of course, with the usual caveat of that geography turbine and scope, of course, influence DASP of €78,000,000 That leads to an all time high order backlog. It's in excess of €35,000,000,000 it's up 11% compared to the similar time last year. So we passed €16,000,000,000 in terms of the turbine business. And as you would see, we have nearly now at SEK19 billion in the service.
And you would also have seen from the announcement that we have passed 100 gigawatt on the service. If we give a little bit more details on the power solution, 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 gigawatt of order intake for the U. S. In the Q2. And 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. We've seen high number of orders in Vietnam and China. So a proper 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 gigawatts, 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. So highlight of the quarter, we had sort of the first AOM 5,000 service contract in the U.
S. For the new Inventus 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. And then overall, we have approximately 70% of our order intake has a tenor above 20 years, which now leads to that we have a service backlog that is above 9 years, which of course gives us a very, very, 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 all three 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 gigawatt Seagreen project in Scotland. That included a 15 year service agreement as well. We have completed the Northwester 2 installation, and we are well under the way in installing the Bersile project also. It is already partly and it is already also now partly in production of electricity, which, of course, very positive.
And then we have completed the 3rd and the final floating turbine into the Wind Float Atlantic project, which is off Portugal's coast. And of course, that again demonstrates our commitment to also keep innovating into the foundation towards floating in offshore. Else, in the bottom, you can see what other projects we have in progress, and I don't think there is any major news to that. So then I want also just to mention here, we are the 1st wind turbine manufacturing that have the validated strategy in line with the 1.5% global warming scenario according to the Paris agreement. We had that validated from design based targets experts in the quarter, which especially is around our Scope 1 and 2 emissions, which is carbon neutrality towards 2,030 as you know.
I also think here importantly is a lot of debate, how do we then go around it and you will see so far since 1st 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. So it does actually make a change and also an effort to demonstrate and put some commitment to it. If you're interested, please read the 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 will hand over to Marika.
Thank you, Henrik. So on the income statement, we clearly you heard Henrik and the high activity level that we've had here in Q2 of 2020 despite the COVID-nineteen situation. So 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, and I will come back to that. We also saw a negative impact from COVID-nineteen here in the quarter.
And you see that EBIT, as I said, is also down compared to last year. But 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. So altogether, very good activity level, And if you compare to last year, we are now on a 12 month rolling down to 5.7 percentage points compared to 7.2 percent in Q2 of last year. 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. And if we go to the service business, also continuous good performance, as you heard from Henrik.
We saw an increase in the service revenue by 6% compared to Q2 'nineteen and an EBIT margin of 28.5 percentage points here in the quarter. So obviously, very solid and good performance in the service business and also considering here that we are in a COVID-nineteen environment. MHI Vestas, we see a negative profit of CHF 12,000,000 and our share of that profit is obviously CHF 6,000,000 and again, anticipated because we anticipated a lower activity level here in 2020 for the offshore business. And primarily, what you see here is really the aftermarket activities performed. The change in net working capital, and 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.
And this is also a fact here in Q2. The contract assets and liabilities are also increasing. And 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 NOK 96 percent and 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. And free cash flow before financial investments are more or less in line with last year despite the high increase in the change or higher change in working capital. So we come down to a negative of SEK78 1,000,000 compared to SEK75 1,000,000 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. But 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 lost production factor. You see here that we make an extraordinary provision of BRL175,000,000 here in the quarter and also making the 3 percent or to be correct, €3,100,000,000 in the quarter.
So we have, all in all, €283,000,000 so a much, much higher level compared to last year. And obviously, that has an impact, as you have seen before, on the gross profit as well as the EBITDA. The LPF increase as a consequence of this extraordinary repair and upgrade level. So we are now above 2% here in 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. And the liquidity position remains very strong when we have close to SEK 2,000,000,000 cash at hand at this point. With that, I'll leave the word to you.
Thank you, Marika. And that leaves us with discussing and putting, as we said here, reinstatement of our guidance for the year. And 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 EP centers of COVID-nineteen around the world. However, as we also have the increased visibility of the year, we now guide for revenue that is the same as we initially said in the beginning of the year, €14,000,000,000 to €15,000,000,000 We have an EBIT margin before special items of €5,000,000,000 to €7,000,000 Please, however, take a note of that that does include the extraordinary warranty provision of €175,000,000 And then 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 700,000,000 euros So with that, we will end the presentation here and give the word back to the operator and Q and A.
You. Our first question is from Christian Johansen from Danske Bank. Please go ahead.
Yes, thank you. So my first question is on U. S. Deliveries, which was obviously a very strong year in Q2. Can you elaborate a bit on what we should think about the delivery schedule in the U.
S. Going forward and especially how customers have reacted to the option provided by the IRS, which enables them to sort of push volumes from 2020 to 2021 and then still receive the 100% PTC level?
Thank you, Christian. I think very, very relevant question. And 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 and a lot more is still to be done. But we are tracking that down to both days weeks. It's also fair saying our discussion with customers are generally that no one, if they can, would postpone 2021 if they can avoid. So in reality here, the commitment to a partnership here is that it's profitable, It's profitable from when it's commissioned and delivered. And therefore, people would like to stick to as early delivery as possible.
So 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.
If I may just follow-up, how about then the discussions around the projects which has 80% PTC which you can then postpone into 2022, So any delay in those discussions? Or is that progressing as dinosaurs?
I think there's a lot of those debate going on. And I think we've been open last quarter. I think we were and previous quarter, we were very much I mean, we have to appreciate here. Around year end, we got the extension and then we got a 2020 2021 possibility later in this year. So I think right now there's a lot of those discussions going on.
But as you would appreciate, whether you have 100% or 80%, it is still profitable for customers to do. So now it's the schedule around how do we get into the schedule and what does both the projects but also permitting and of course our capacity allow people to generally do. But Christian, you will appreciate both 180 percent PTC projects are profitable for the customer.
Understood. Thank you. Then my second question is around this warranty provision. So in past couple of quarters, you have also increased warranty provisions sort of reflecting new technology. To what extent have those past increases reflected this specific issue which you highlight as an extraordinary provision here?
And hence, is the total cost of repairing these blades actually more than the
€75,000,000? You will appreciate that a provision like this doesn't come and the root cause doesn't come in one go. So we have over the last couple of quarters looked in. It's a robust process around it. So of course, part of what we have been doing in the previous quarters have been to also look into this.
So 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. And therefore, we can then do the final one off provisioning for the blade issue here.
Okay. I understand. But can you quantify the total cost of this specific issue then?
That's that you would appreciate. We don't share in that sense. So that is an ongoing discussion between us and also our customers and owners of the assets around the world. So there we do this as we would normally do in any of our warranty or SIM cases. So we don't do that breakdown.
And our next question is from Claus Almer from Nordea. Please go ahead.
Thank you. Yes, 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 will be the first question.
No, we don't expect that, Claus.
Okay. And looking at the lost production factor, excluding these blades issues, is the remaining contracts down to 2%? Or how is the underlying level?
No, I think it's fair. Well, you're answering the question yourself almost. We are at a normal level. So we are around the 2 percent apart from this extraordinary provision that we make here in the quarter.
Okay. And then 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?
No. 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. But also remember, compared obviously, that is part of the explanation. Then we have extraordinary cost or COVID related cost that has an impact here in the quarter and as a consequence on the gross profit. And I mean, running extra cost, in extra cost, in particular, for the transportation and the logistics for the turbine operations.
So 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 Solution.
And our next question is from Dan Togo from Carnegie. Please go ahead.
Yes, thank you. And maybe this question feeds fit into your just how you just answered, Marika, because I would like about 1% or a little more than 1% is this warranty provision. The latter amount of the remaining part around 1 percentage points. Can you give some wording what that is underlying? And I expect it has something to do with what you just said, Nureka.
But please give some words on the guidance. Thanks.
Yes. So obviously, the 5% to 7% that we're guiding for is as a consequence of the warranty provision that is high and then also the COVID situation that we're in altogether. And then 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. But the 2 major is really the warranty extraordinary warranty provision and the COVID-nineteen situation. And that's why we have taken down the EBIT guidance for the full year.
Okay. And then another question on the Voci provision, €175,000,000 Is this how you will consume that going forward? Will that be any way, so to say, hammer or have negative impact on how your activity would otherwise have developed? I mean, do you need to dedicate a
lot of resources to this?
Well, I think obviously I think Henrik said that earlier as well. I mean, the process we go through when we provide for the warranty is by no means random. So we have a process that we have followed altogether. We also made a thorough investigation in terms of coming up with the SEK175 1,000,000. So 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. So we it's a big number of blades and therefore, the high amount of 175,000,000, so that's clear. But obviously, as we're guiding for the same activity level as our original guidance, we're talking about €14,000,000 to €15,000,000 We obviously see that we can do the 2 in combination, and I think that is the most important thing to highlight.
But what you highlight also here is that this stretches for at least maybe 18, 24 months. So it's I mean, it's a relatively long period that stretches into 2021 as well.
No, but I think that is, I think, more your assumption. We don't do the forecasting for next year. And obviously, what we're talking about now is the full year for 2020. And the activities regarding warranty is included in that guidance.
But it's probably fair, Dan, if your question is what you should do and the consumption of it, then of course, yes, it will run over the coming quarters and into next year for sure.
And our next question is from Gael De Bray from Deutsche Bank. Please go ahead.
Hello. Sorry, I was on mute. Sorry for this. Good morning, everybody. Can you hear me now?
We can do.
We can.
Hello? Okay. 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? I mean, 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. So your question regarding the COVID-nineteen impact in the quarter, we have from the beginning of the year said or when we Q1 in reality said that we're very strict on how we calculate the COVID-nineteen direct impact. And what we have come up with here in the quarter or Q2 of this year is a CHF 20,000,000 impact from COVID. Then obviously, you will have an impact on some delays in the revenue on the revenue side. And obviously, that has also an impact on the EBIT.
But direct cost impact from COVID-nineteen is SEK20 1,000,000 here in the quarter.
Yes. And 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 setup 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. So no change in attitude of that.
And you know from our strategy, onshore, offshore and service are the 3 vital set of strategic legs of our strategy.
And our next question is from Akshay Gupta from JPMorgan. Please go ahead.
Yes. Hi. Good morning, Henrik. Good morning, Malika. My first question is a follow-up on this warranty provision.
So can you elaborate when these turbines were originally sold and which turbine models does these provisions cover? And also this blade issue, is that was that a design issue? Or was that a serial production defect that you find out after installing the blade?
No, what we will say here is, 1st 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 side and turbine by turbine in this sense.
Thank you. And my follow-up question is on Inventus Turbine. If you look at your Q2 large orders, then share of Inventus was, I would say, rather low. And if turbine, I think it's been quite a while since you have launched it. And the question I have is that by when do you expect that majority of these large orders that you announced will come from inventors?
I mean, 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 of there. It's gone into serial manufacturing now, doing the course, especially the course of second half of the year. So that works to plan. And therefore, as you see, number of both current discussions, You've also seen we have taken some orders.
There are more to come. And I think here it's a gradual ramp up both in order backlog of the inventors. So in reality quite pleased with it occurs at the current stage.
Thank you. And maybe a quick one for Marika. Do we shall we expect any impact on next year margin because of some delays to projects like I don't know how it fits in your P and 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 the P and L? Like, will it be hitting this year or next year?
Well, I mean, what you can potentially expect for this year is that we can have some slippage from Q4 into Q1 of next year. But I think we have also provided the guidance of CHF14 1,000,000 to CHF15 1,000,000. So obviously, we think I mean, we have a positive view on the remainder of the year. Then as Henrik said earlier, I mean, no one has a silver bullet on the COVID situation. So I mean, there's nothing we can guarantee.
But so far, we've done a very good job to accommodate our global presence.
And our next question is from Supaya Subramani from UBS. Please go ahead.
Yes. Hi, good morning. And thank you for taking my questions. First one is again related to sort of the impact from the current COVID-nineteen situation. And I appreciate that you cannot specifically quantify the cost or the impact on cost in this quarter.
But 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? And also maybe related to this is, has the company taken any specific restructuring measures to garner some short term savings? And if so, is there 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. But the COVID-nineteen direct impact on our cost this quarter is CHF 20,000,000 and that is to be compared with CHF 10,000,000 in Q1. Then obviously, we have calculated as we've given you the guidance now, we have calculated for a COVID-nineteen situation to continue throughout the year. And obviously, no one, as I said earlier, have the silver bullet in terms of how the situation will pan out.
But as we're giving a guidance for CHF14 1,000,000 to CHF15 1,000,000 here for the full year, obviously, we feel confident that we manage well in the circumstances that we are in. And what we have sort of said from the beginning is really when it comes to COVID-nineteen, we shouldn't use that as an excuse and blend it too much. And obviously, you see impacts on suppliers, on transportation, on the overall logistics. But what we are calculating is really the direct cost when it comes to COVID-nineteen, 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-nineteen situation.
I don't think anyone has a silver bullet. But I think during the circumstances, we are managing well and handling and dealing with the situation.
Right. So got it. And second my second question is more related to the offshore business. And there in terms of the competitive positioning of MHI Vestas versus the competitors. And we know that we have the 12 megawatts, the Infinetas, of course, we recently launched the 15, 16 megawatts turbine vessels, MFI vessels right now, so it just has to stand.
So do you think there is some technology that's lacking? Is there would I mean, it's 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, Derek, it's obvious. And we've commented 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 that 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 lifecycle and product lifecycle, we have a longer lifecycle in offshore and we are fully aware of. So 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
And our next question is from Martin Wilkie from Citi. Please go ahead.
Yes. Thank you. Good morning. My first
question is on service. So another very strong quarter, but I think you've kept the 25% margin outlook. Given that last year we saw a lower margin in Q4, is that sort of seasonality which you expect? And if effectively, is that the sort of new pattern for profitability that we expect to 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? So that's the first question.
And second question was just on cash flow. I mean, obviously, an inventory build perhaps as we'd expect. Obviously, there is 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. So you can't really sort of use a 2019 pattern to say that there is 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 it's every percent on that business is €20,000,000 in round terms, which easily in a business that has more than 10,000 employees deviate. So 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. And 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. So we really appreciate that.
So allow us the wiggle room around the approx 25%.
And 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 SEK14 1,000,000,000 to SEK15 1,000,000,000 that we are guiding for is absolutely correct. And 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 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. But 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.
And our next question is from Rajesh Singla from Societe Generale. Please go ahead.
Yes.
Hi. Thanks for taking my question. I have like a couple of questions. So 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. So if you can just comment on like where do you see and what kind of strategic moves you are making in that particular region to gain more market share?
And the second question would be on the warranty provisions. Like 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. And I think here when we comment on it quarter by quarter, some quarters and 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. And 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. And couple of those markets are long standing markets where we are having an established position, which is really pleased to see that we are still strengthening the existing position. And then in a couple of markets, I would hear 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 a traction from the local customers wanted to do more projects.
So here and as we have said, commented on the previous quarters, we are also same following the same process, same discipline around profitability thresholds and targets. So 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. I mean, we have several decades long history in being a technology and quality leader in our industry, and we have no absolutely aspiration to change that vision. And therefore, we also just saying it upfront here.
There is a thing we need to address. We will addressing that. And then we will do our normal robust process when we look at it. So 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. So given that onshore wind energy has been the most competitive source of renewable energy, it's highly competitive versus other sources of energy. So how do we see the R and D cost trending in the coming years? Are we going to see some decline in R and D cost that we are already very competitive versus fossil fuel and other energy sources? So what is the further scope of R and D in the onshore energy?
Is it like can we go to, say, 7, 8 or 9 megawatt turbine in onshore market?
I think I mean, obviously, we cannot comment on the future development. But 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. But 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 and D in the foreseeable future. But the focus is there, and we will, for sure, not jeopardize the technology position that we have.
And our next question is from Sean McLoughlin from HSBC. Please go ahead.
Good Morning. Thanks for taking up my questions. 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? And again, how that mix might pan out in the second half?
Secondly, on cash flow, how far below the 700,000,000 euros CapEx figure do you think will come out in 2020? And how much again is due to the optimized product portfolio? And how much is effectively lower CapEx due to general precautionary measure? And what's your current position on buybacks in 2020?
Thank you.
That sounded very much good morning, by the way. That sounds very much in a couple of questions in excess, but that's okay. I will just say, no, there isn't any change and there is no change in structure to the service business. So we don't see any of that, Sean. So I think that's the one.
And then I think Marika will address CapEx. And the buyback, we always say, listen, it's 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. And
if we come back, I think you mixed a few items here. But if we look at the CapEx below the SEK700 1,000,000 that we're guiding for, obviously, we see an impact on the fact that we actually ceased the development on one of the products in actually in this quarter. So that obviously have an impact. And if we're taking any other measures to be sure that we if we are within reasons when it comes to CapEx and not jeopardizing cash flow. I would say put it differently, Sean.
I mean, we're obviously doing what it takes to run the operations and fulfilling the requirements towards customers. So and as you see, we have a very high order intake and we have new products that needs to be fulfilled, and we will obviously do that. And then the only thing I can say, we're always cautious about cash. That will continue. And but again, we will not jeopardize our position in any shape or form.
And the only thing we have said so far, not to be too precise, is that we are below the 700 in for the full year of 2020.
And what might be I mean, just thinking of that portfolio optimization, is that something that we can extrapolate to future years? What
we have seen on the sort of 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. And I mean, you have seen it previously, in particular, molds. And what we have said going forward, I mean, a normalized CapEx level could be around the €500,000,000 if we don't have all these new products coming out. But it will also depend on the overall activity level you see in the market and the demand that we have from the customers. But that is the situation that let's say that the normal situation is anything between €500,000,000 €700,000,000 when it comes to CapEx.
Thank you.
Thank you.
And our next question is from Casper Blum from ABG. Please go ahead.
Thanks a lot. First of all, congrats in reinstating the revenue guidance. That's truly impressive. And then two questions from my side. First of all, last year, you had the trade tariffs impacting your supply chain this year COVID-nineteen 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 what where you are? And secondly, on the order intake ASP of 0.78%, I think that sort of leaves us with pretty much 3 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. Thank you, Casper, and your thanks to be shared here with a much wider team of investors. 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 gigawatts. So in total, we are nearly at 10 gigawatts for the first half of the year. So 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, it's not the easiest place to be being a global manufacturer. But you cannot be a global mature industry and not having a global footprint. So we are doing I think we have done a lot really well here. So therefore, 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. So 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.
And then I will say I will comment on the industry because I think you're trying 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. So 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.
But 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. Hence, 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. But I also you will also appreciate here number of changes across the world in the last 3 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. So I think it has to be a combination of the 2. And then as we both appreciate, you can't I mean, ASP is a super good measurement, but you will also accept in there, there are quite a lot of variations, both in terms of location, geography and scope of it. So 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.
And our next question is from Sams Hoi 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? And 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 it 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 175
percent. And in the second half of twenty nineteen?
Okay. We're expecting the same 3.1 percent for the full year this year.
As it was in the second half last year.
Correct. 2.5% in the second quarter last year to be precise now, second half of last year.
Okay. And your question about the okay, sorry.
No.
Okay, fine. And 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. So fully operational when we get into Q4 this year.
And neither DSV or we have said any numbers to the benefit of this, but we are working absolutely diligently both on the inbound and the out bound to harvest as much as we can from the partnership. So pleased with the progress and then when we get into Q4 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.
And our next question is from Keay Sells from Morgan Stanley. Please go ahead.
Hi, good morning. Thanks for taking my question. I think a couple of things have been answered already, but just a quick one really on the service business. I wonder if you could discuss, is there any margin differential between the VESTAF or the service contract on VESTAF 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 best us brands?
Okay. So I think, Edi, what we have said earlier is really that it's primarily the scope of the projects that define the profitability. So when I look at the vessels brand, we have a very high scope. So we have the vast majority is the AUM 5000. And obviously, there you have a higher profitability because you also make more commitments in the under those contracts.
And in the multi brand, if I generalize, it's a bigger volume, but in it's also a lower scope and lower complexity. And therefore, you have a lower profitability on those. But that is really because of the complexity and the large volume that you're anticipating under the multi brand contracts. So but you also under those, you have a mix. So it's not only low scope contracts.
You would see higher scope contracts as well. And then that would be treated in a similar way as the Vestas
brand. Got it. Thanks.
Thank you.
Our next question is from Marc Benci 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 €290,000,000 lower EBIT now than under the old guidance. And we know SEK 175,000,000 of that pertains to warranty provisions. We know SEK 30,000,000 cumulative pertains to COVID costs in the past. What does the other 100 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, what are they 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, Marc. If I start with the overall EBIT guidance for the full year and the difference compared to when we guided in February. Obviously, the SEK175 1,000,000 is part of the SEK5 1,000,000 to SEK7 1,000,000,000 and you also have COVID impact on that. So those 2 are the biggest items when it comes to the deviation to the 7% to 9% that we put forward in February.
Okay. And in terms of the green deal and I think on the general, I think green deal is, as we all speak about, is Europe. And I think as you would appreciate me saying in a quarter like this, we've taken 4.1 gigawatt of orders across 18 countries. And 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. And 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, but 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-nineteen.
So I think here it's much more for any customer now to say as you're rightly saying access to capital is not limited despite the COVID and the financial and economic you can say recession like conditions. But at least here the access to the capital is there and also the capital available from customers, utilities and global asset managers, infrastructure fund have probably never been bigger than it is today. So we generally see right now a different conversation. It's 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. So there's a lot of countries that will come up as new countries, positive markets for Vestas to compete in the future as well. So the glass is more than half full.
Okay. And our next question is from Ben Heeling 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-nineteen 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. So do you have any initial comments or initial color about how we should be thinking about volumes and revenues into 2021?
And then 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. So in reality here, 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 1 or 2 delays in other things.
But generally, I think it's really a gratefulness to the team and to conditions we are working on that we are able to stick to a guidance within €14,000,000,000 to €15,000,000,000 for the full year. And we have, as I said here, we have a good visibility to it. But 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-nineteen. And then I have to say, and I actually forgot your second question. So repowering, I think the repowering across the world is 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. And 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. So in terms of actual volumes, U.
S. And Europe predominantly.
And our next question is from Lars Heindorff from SEB. Please go ahead.
Yes, good 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 €150,000,000 So the question is, by now, with the tariffs and the trade situation, which appears to be a new normal, have you adopted and changed your supply chain to what might be a new normal, I.
E. Having could we see that the supply chain cost pool perhaps go down going into next year given a sort of a more stable situation? I realize, of course, that the COVID-nineteen 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. So that means we are simply just adjusting and saying this is the conditions we are 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.
So 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. But as you would also appreciate here, if we just look at our both phasing and also execution of it, we are making constantly effort in to improve both synergies, but also efficiencies within that supply chain.
Okay. Thank you. Then the second one is on still going back to some of the warranty provisions and related to the Inventus platform, you have seen sort of a gradual increase of the warranty provisions looking aside the €175,000,000 of course over the past many quarters and you've been arguing that launching the new ventures platform is part of the reason. So when will we see that the warranty provision related to that new platform will start to decline, I. E, I mean, when are you up and running at a pond and you have the certainty and visibility that you believe they will be safe enough, you can call that, to lower those provisions?
I think last year I'll probably safe enough and I think we are mixing things here. There isn't any increased warranty provision as such to an Inventor's platform or whatever. So what we have said here is that we work diligently. And when we introduce new things, we will always provide prudently for it. And as also Marike mentioned earlier 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've seen.
So that varies. So over time, you have seen a warranty provision between 1.5% 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.
First of all, a
couple of your Western competitors have talked about orders being pushed into the future because of the COVID-nineteen. Is this anything that you've experienced?
First of all, Jacob and I would just suggest that this is the last questions we are taking, not your last question, but you were the last person. But as I said here, Jacob, on the order intake, we released 4.1 gigawatt. If we have been able to take more, we would have taken more. But we haven't pushed anything into other. Customers generally signed up to what it was here.
And as we said, when we did the Q1, we will continue to push on. And therefore, that's also the message for everyone here. We are in Q3 now, and we continue to push on both in terms of order intake and also delivery. So we don't hold back.
Okay. Then my last question. What is your view when you look into the 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 come. So some countries push it a quarter ahead. But generally, I will say it seems like we are in a position where business as usual. Then there will be 1 or 2 countries that are posted a quarter and we will live with that. But 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 come shorter than the normal 18, 24 months.
So 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. So with that, thank you so much for your attention. And I know we will meet quite a number of each other over the virtual room, so to say, over the coming days. So look forward to that.
And thank you for your attention to the investor presentation.
Thank you.