Good morning, everyone, and welcome to Vestas' Q1 presentation. First of all, I will say we didn't choose the music ourselves. So would you just leave that out to another atmosphere on another day? I'll also say on behalf of Marika and myself, we've been looking forward to this investor call. First of all, it comes on the back of very intensive communication with a lot of our other stakeholders, namely customers and colleagues.
And therefore, let's go through our Q1 and also how we have performed but not least also how we are addressing the current lockdown due to COVID-nineteen. Disclaimer you know all about. So the key highlights of Q1, first of all, safety first in this very challenging environment. I will comment on it much further in the coming slides on how we are doing in the COVID-nineteen crisis and what we have put in place and how we are dealing with it. The increased order intake, you knew from the 7th April when we said we had an order intake of 3.3 gigawatt up 10% compared to Q1 2019.
That leads us to an all time high order backlog of €34,000,000,000 And in the quarter we had revenue and profitability broadly in line with our expectations. Revenue increased 29% to €2,200,000,000 and profitability was impacted by some low growth margin in the quarter and we'll come back further to that. We had again a stellar performance in service in the quarter, organic growth of 12% compared to Q1 2019 and EBIT margin of 26%. But before we go into the financials, let me just give you an overview of how we are first of all impacted by the COVID-nineteen and how we are dealing with it and a bit more comment on also how we are continuing performing throughout this crisis. So I'll ask you on the left chart sort of here start up in the corner where throughout the last couple of decades we have seen that renewable has been clearly aspiring to become critical infrastructure on the energy side.
That has indeed happened. So I think in all of our plus seventy countries where we are working, we are deemed critical for both the production of energy and also the infrastructure country by country. That also means that when we have all our employees out working diligently on-site in factories and others, then of course the health and safety measures of all our employees are absolutely top priority to us. We will comment on it. But as I said here, throughout this crisis, we have had 25,500 people working diligently around COVID-nineteen.
And in all in all, we as of last night, we had 30 cases where 21 people have recovered. So actually our protocols works really well. We very early on sat when we had the discussion in China in February, we absolutely insisted on that we will run Vestas under the business continuity of all our Vestas operations globally. I think also here that has led to that there has been a clear ambition and also an insisting of both ourselves, but also to all our partners working across the supply chain to have continuity as one of the prime drivers throughout. What we can see now where countries start talking about reopening again, I will say still our mobility and access to site, of course is very important.
We can also see that access and mobility to site has in a number of cases been questioned or challenged. But I would also say here, thanks to a lot of both internal colleagues and also to a lot of external stakeholders, mainly by customers. We have had an enormous support in getting access to all of the sites where we are required to perform work either as a service or as a construction on ME also in our factories, which has been really, really strong. If we then take the global situation and the business environment in and around that, as I said, clearly now it's deemed critical infrastructure and we have seen that. And to give you an example of that, if we take most of our countries, the longest we have had any of our factories been closed down has been 2 weeks.
That was the time we took until we partly were allowed to start opening in China. And we have had similar stop and go in some of the European countries. But for instance, in the U. S, we have had hardly any days off from our performance and opening of the factories. We are in Denmark and therefore I also need to extend the thank you to our colleagues working at the factories in Denmark.
You hear Denmark has been closed completely down. In reality, since March 13, where Denmark did close their borders, we have had a very close relationship and very close cooperation with DSV. So at any given point in time since then we have managed to get all our components and needed raw materials into the factories and we have managed to get our manufactured assets out again as well. So it does actually work. We will also say here from the global situation, it is important to see that we went from a pandemic to now clearly as everyone talking about the economic crisis.
We won't comment on how deep it would be. But clearly, we are now asking everyone to also really consider and put the green agenda as part of the recovery programs when we start rebuilding and opening societies again. When it comes to Vestas and the running of Vestas, I think we have we established and we had some time practicing that in the days of China in February. But we put a cross functional crisis management team together. These colleagues have been worked absolutely tirelessly throughout this whole crisis and I can't thank them enough for keeping Vestas really tight as an entity.
You will all appreciate most countries have taken their own separate measures to either close or partly close or do something on their own. So therefore, I think running a global company with that many countries in operation actually requires a special thing when it comes to the crisis management team and the whole discipline to running the protocols. So again, a detailed thank you to how this is, but I think also it proves some evidence to everyone that this is possible to run even large companies and operations safely while the society is open. I think also here, thank you again to some of our partners because they have worked closely with us. They have followed the same protocols And that also meant that they have also been allowed to have an exceptional opening in most of the countries where we have operations.
So with that, I will say, yes, we will also have done things probably we could have done better. But I think if I put a percentage to it, we are 9 out of 10 decisions. We are absolutely pleased with how we have performed so far in COVID-nineteen. And we have now a really broad experience to bring forward if this is a continuing or a recurring thing for us. But we are very convinced that we can keep Vestas operating even under such severe difficult conditions.
Let me give you just a short overview of markets here. I won't spend much time on that one just to say that when the final numbers came out between 2018 2019, when you include China, as you will see to the left of 2019, we end with a market share of 18.1% out of a total market of onshore installations of 53 gigawatts. If you then look to the right, which is also when you exclude China, then we have a more or less unchanged installation from 2018 to 2019. And we are running between 36% to 35% on that. I think also a note of this slide is just to sort of say 2019 also illustrated that it now becomes further and further play among the 3 top global companies here that now sits with a total consolidated market share in excess of 75% with the 3 global OEMs.
Then let me go more into the details of the quarter. As you saw already on the 7th April, we had an order intake of 3.3 gigawatt that come from 21 countries and namely China, Sweden, Poland, Brazil were some of the top takers in Q1 2020. When we look at the ASP, the ASP ended at 0.72, But you will also appreciate here that with a slightly lower scope in China, then when we correct ASP for China, then the underlying ASP is 0.77, corrected for China. So again, prices remain stable also Q1. That leads us to a consolidated order backlog on the turbine side of just shy of €16,000,000,000 and on the service side of €18,000,000,000 when we look at that.
And that is a €6,000,000,000 year on year growth, almost 20% compared to the same quarter last year. When we look at the power solution, just a short update. We have installed now 115 gigawatts globally of installed turbines. That also means that we displace 154,000,000 tonnes of CO2 emissions every year and leads us with a 17% cumulative market share globally of all installed turbines. If we look at the Q1 'twenty highlight, I will say our utmost strong globally effort to secure the business continuity has been very outspoken throughout this quarter.
We can see that some of the auctions that were scheduled in and around 2020, some of them have either been postponed or delayed within at least what we can see from 1 to 2 months. And I think that is just as expected when some of the auctions require both physical presence and to some extent also knowledge of land and land allocation. When we then look at the order increase and the order taking in Q1, you will really appreciate that we've had increased order intake and especially also when we look at cross EMEA where we have had a very, very good Q1. We have seen lower order intake in Americas. I think we already by end of last year highlighted that we believe it will take a bit more time to see how 2021 will pan out for the U.
S. Because we are still in a very, very busy year in executing on the existing order pipeline in the U. S. Brazil partly offset that and therefore also contributed positively to the order intake in Q1. So just below you can see the order intake across Americas was 6 12 megawatt down 63%.
We had 1.9 Gigawatt in EMEA, which was 166% higher. And we had 0.8 Gigawatt in APAC, 27% up. So with that, go to the service business. As mentioned here or can see here, we are closing in on celebrating our service business passing 100 gigawatt of unserial turbines under service. Clearly, it's something we expect to happen in the coming quarters.
In the quarter, we also saw that 18 years was the arbitration on new contracts signed, which is up from the 17 years we had by end of last year. And we are now active in 70 countries in total. When we look across Q1, I think encouraging for our long term strategy in China, we've seen an order of 20 year full scope services in China, which is very much in line with what we are aspiring to achieve in China under both the orders and also the setup for our operations in China. You've also seen on the multi brands that we took a Senvion turbine order in Australia of 126 Megawatt and we will continue focusing on both the own our own capture and also the multi brand. The split of the service fleet below, I will just leave to you.
Then on the offshore, Emirates, Ivesters Offshore, again, a more active quarter here in terms of the order intake. So we have 5 gigawatt order installed. We have 3.4 gigawatt under installation and as unconditional orders. And then we have 2.1 gigawatt of unconditional orders and preferred supplier agreements overall. The Q1 highlights here, I will actually start in reverse order and just saying, MHI had exactly the same commitment to keep operations running.
It's really nice to be there last week and meet some of the colleagues there, because they have also been working diligently with operations and service throughout this whole COVID-nineteen. They also therefore managed very limited interruption for instance with the Northwester 2 project. So that is near completion as we speak. When we then take look at the order intake, we had 589 megawatt of firm orders in Taiwan. And then also we had firm orders in Japan, 2 wind parks, Akatita and Noshiro Offshore Wind Parks that are now consisting of 33 V1-one hundred and seventeen turbines in Japan.
So with that, I will hand over to Marika for the financials.
And thank you, Henrik. And if we have a look at the income statement, I just want to say, 1st of all, that the income statement is in line with our 29% compared to last year. So obviously, the activity level we're trying to keep as best we can in these circumstances. Gross margin took a dip down by 6.5 percentage point, and that is primarily driven by the logistical challenges that we have spoken about numerous of times and supply chain bottlenecks. And unfortunately, that has been further amplified by the COVID-nineteen situation.
The other two parameters that have
a big impact here
in the quarter is COVID-nineteen a big impact here in the quarter is COVID-nineteen in isolation and also lower share of service and higher provisions have a negative impact on the gross margin. EBIT obviously took a step down, and that is primarily driven by the lower gross profit. And I will get back to the SG and A performance later on. Special items is €58,000,000 here in the quarter, and that is driven by a write down of a platform to further optimize our technology and also simplify the platform further. If we have a look at the SG and A cost, I would say that's continued to be well in control.
And you can see obviously driven by volume. Remember now, this is a 12 month rolling. We're down to 6.1%. So I would say, well under control and obviously a very important factor for us in the circumstances everyone is in right now. We continue to have a very strong service business and not only on growth but also high profitability here in the quarter.
So a very stable business also in more difficult times as now. And obviously, service business is also very dependent on access to sites. So there, we have done a good job trying to keep as normal situation as possible. MHI Vestas, I think Henrik mentioned the overall performance. Activity level is, to no surprise, down here in the quarter and in this year.
But EBIT margin has improved year over year. And consequently, there's a EUR 6,000,000 net profit here in the quarter in total. So let's have a look at the change in net working capital. We continue to build inventory. So obviously, we are expecting and we also see a continuous high activity level.
Obviously, the visibility is much higher the closer you are to a quarter, and you understand that we are in queue already as we speak. We also have down the milestone payments, partly offsetting the liabilities we have here in the quarter in terms of inventory. And we have paid out a global employee bonus in this quarter. If we have a look at the cash flow in the quarter, obviously, impact is, again, to no surprise and planned for, the change in net working capital. We continue to have a strong net interest bearing position, and we have obviously a continuous focus on the cash discipline in the company.
Here, you can see the total investments are slightly down compared to last year. And we are also talking about below EUR 700,000,000 in CapEx for this year. And obviously, that is a consequence of the optimized product platform that I was alluding to in the P and L. Warranty provision and loss production factor. Here, you see we have increased the warranty provision compared to last year, and we have a slight increase in the lost production factor.
Remember that we have launched a lot of new products. We also have a very big volume that we are exercising as we speak, and that has a consequence on the lost production factor here in the quarter. The capital structure continues to be strong and well below the target. And the liquidity position remains strong with €2,000,000,000 cash at hand. And we also have credit facilities of €1.
€55,000,000,000 And we have a new loan facility amounting to €1,000,000,000 that we signed on May 1, 2020. By that, I leave the word to Henrik.
Thank you, Marike. I just think here I just want to also really say thank you to the Exane team, but also Marika here because you've been here since 2013. And as I said, you have seen variations to both cyclical part of the world economy and others and really appreciate also the prudent and conservative view of the classic disciplines we are seeing here. We have the facilities in place if this also upsets the world economy in a broader scale. But cash EBIT and Growth is clearly and namely on our priority list.
When we go to the outlook, I would just shortly comment on here that you saw clearly on the 7th April where we suspended the guidance. It is also fair, we and this is how we run Vestas and this is how we will continue to be running Vestas as we see it. We absolutely still run Vestas as according to the initial plan. We still have the same targets how we work through diligent in both the projects region by region and also the manufacturing. And I think we are assured from our daily discussions with operations that we're actually doing that pretty well.
And we are positively assured how that is running. That is also why we are saying that there is still an achievement of guidance is still realistic and that is how we run internally. We don't accept COVID-nineteen as an excuse for not doing the right things. But then it's also clear that we are just now in most of the societies around the world start opening again. And therefore, it's also fair saying until we have that full visibility, we won't resume any guidance for the year.
But what at least we will say here of today is of course that the service business keeps performing very well. We expect it to grow approximately 7% for the year and having an EBIT margin of around 25% for the year. And then as Marika right here alluded to with the changes we have made in our late April press release, yet in total investment with the optimized product portfolio will be below €700,000,000 And with that, I will say thank you and also hand over to the operator.
Okay. Thank
you.
And our first question is from Christian Johansen from Bankers Bank. Please go ahead.
Yes, thank you. So first of all, you mentioned, I think, several times that Q1 results was in line with your original expectations. But obviously, looking at where consensus expected the gross margin to be, it's not quite in line with what we had expected. Therefore, I mean, especially you mentioned logistic challenges and supply chain bottlenecks and also commissioning of the late projects for 2019. If you can elaborate a bit further on this impact and especially to what extent the physical challenges and supply chain bottlenecks have accelerated versus Q4?
And for both these factors, what you expect in the coming quarters? Will this level off? Or what are you seeing right now?
Yes. And we have here in the quarter, obviously, a few projects that have been delayed. And any I think we have said it numerous of times, any changes to our planning or any rerouting or correspondent to that will have a higher cost and that we clearly see here in Q1. But having said that, Q1 is more or less in line with our own expectation. We expected it to be a more modest quarter from a profitability point of view.
Then we have also increased the warranty here in the quarter. So that is €34,000,000 gap. And we have also have, if you call it in isolation corona impact, it's around €10,000,000 in the quarter. And we also have a lower percentage from the service business simply because the volume or the revenue is higher here in Q1 of this year compared to last year. But it is the logistical challenges and the transportation is what is costing us the most here in the quarter.
And the visibility we have going forward is that we will not have the same headwinds when it comes to that. But then obviously, going we have a visibility over Q2, but the crystal ball on what will happen going forward, we don't have fully. But there's no indication that it will be bad for us. But I mean the logistical challenges and the cost for them, my expectation is that, to some degree will continue. And just to give you a very simple example, Christian, is I mean, we have a lot of inbound.
And when we have delays for suppliers, we cannot even transport. And To compensate for customers, we do airfreight. And right now, there's not even flights available. So the logistical part is extremely cumbersome to get the supply, but it's also costly when we get someone obviously agreements because if we don't that will be even cost more costly for us in isolation, but also going forward in terms of customer trust.
Okay. So just to make sure I understand correctly, you expect these headwinds from the digital channels to be less but still be there?
Is that
what you're saying?
Yes.
Perfect. Then my second question, you also mentioned on auctions that you've seen delays for a few months. If you look at your order pipeline and the negotiations you have with customers on potential new orders, what level of delays or cancellations are you seeing here?
I don't think generally we see a lot of delays. There are some physical delays, which probably we are talking about right now, which is just carrying papers and other stuff around to each other that delays things. And then making it firm, there can be some delays because not all parts of the world works as electronic as you would think. So therefore, Christian, there will be some delays on some of those projects. But so far, as we said already in Q1, actually positive over how well that part of it still works.
And we don't see any effect sort of for at the near term quarters here.
And we just to confirm what you asked, it's also on the cancellation side. We haven't seen anything of that. And I think it's also good on the order intake we have here in the quarter. You clearly see there's a good activity level on a continuous basis.
Thank you. Our next question is from Patrick Mihaj from Deutsche Bank. Please go ahead.
I didn't
Mr. Minharson, your line is open now. Hi.
Sorry about that. Thanks very much for taking my questions. So firstly, could I ask about the U. S? You touched on that and it's difficult to get any indications there.
But I mean, could you maybe give us some idea of your conversations with customers and how they may or may not be changing their plans into 2021 into the midterm? Secondly, you mentioned the 20 year service contract in China. I'm just curious to see what your thoughts are on how you see that market developing post auction, both from a service standpoint and also in terms of market share development? Thanks very much.
Okay. I will just start with the U. S. And I think we all along said from an order point of view in 2021 2022, I think still a lot of planning is going on. But I also think here customers are of course probably 99% focused on what is going on in 2020.
So I think here diligently we are working with both the current pipeline, we are working with the scheduling And of course, as you can imagine right now, there are some rescheduling going on, which probably pushes some of the weeks. And I think it's also fair saying we will now start seeing some of the projects start taking some weeks into Q4. I think everyone tried to avoid Q4 when we spoke a quarter or 2 ago, but I think it's fair saying right now that delivery focus is 100% to what is going on in 2020. That is what you can see also we are preparing well for. And therefore, I'm also very pleased that our manufacturing and supply chain are working to the extent it is right now because that gives us the confidence towards it.
So I think as we all along said, we probably need to be mid year before we start seeing some tractions. We know there are a lot of discussions, but I think there is also discussion of how will the PTC sits end of the year and how will that potentially affect 2021. And I will come I don't know more than probably you have seen as of yesterday. So there isn't any news accordingly to the discussions. In terms of China, we have all along said profitable growth in China and that also means that it is a profitable growth that relates to customer, customer discussion.
And generally, we don't take any orders that doesn't sit with the threshold of our profitability globally. And of course, for us, it is really nice to see that we believe after the feed in tariff will schedule to end end of December that probably China will come more into the free market and therefore also suddenly maintenance and service becomes a part of also the value proposition and also the way you try to increase your efficiency of your renewable investments in China. We believe we will play a role in that. We haven't put up any percentages market share targets on that one. We want and we will still be a leading global player in China, but it will be a profitable market share we will have.
Thanks very much.
Okay. Thank you. Our next person to ask question is Akash Gupta from JPMorgan. Please go ahead.
Yes. Hi, good morning, Hendrik. Good morning, Malika. I have two questions, please. My first question is on service business.
So you are reiterating your guidance at the full year results. And question is how much of the 7% revenue growth is covered from your over €18,000,000,000 service backlog? And what sort of new or more in for out sales you will be needed to meet this 7% growth target?
I don't think we have any clear, Denis. We have the orders. As you can see, we have the order backlog, which is not influencing activation of different. It goes live when it goes live and we start the service contracts. So therefore, that is more plain running.
Then you would appreciate then when you compare quarter on quarter, it's not evenly set from a service business when we see the quarters. So therefore, respect that this is the visibility we have for the quarters ahead in the service business, indicating that some of the quarters will be slightly lower than the 1st quarter's 12% when you compare to the quarter Q1 2019.
Thank you, Henrik. And my follow-up question is, a couple of years ago you announced and or Vestas announced past couple of years. My question is that will you be more open for co development in current environment where there may be some headwinds into the market that may lead to some projects may be struggling at a
while? I don't think we have sort of a view of compensating. We have said all along that if customers want us to participate in co development or development of projects, we are prepared to do that. We don't haven't changed our view. And we will have we will do the same valuation of a co development project as we would do with any other project.
It has to be the right terms and conditions before we enter into it. And obviously, wind conditions and the assessment of that is as adequate as for our normal business. So we haven't changed methodology from that perspective, Akash.
And it's minor. So therefore
it won't
So we shouldn't
be expecting any step up in co development industry?
No. I mean, as I said, we do it when we have the right project ahead of us, but and that is what we're performing. We have obviously the Lake Turkana that we are already in and that we have a stake in. And we also have the project in Sweden with PKA and Vattenfall that will we have a 40% stake in that is materializing next year.
Okay. Thank you. The next person is Lars Heindorff from SEB. Please go ahead.
Yes, morning. Two questions from my side as well, please. The first one regarding the order intake and your capacity for this year. The Q1 saw and I would say maybe an unusual high share of orders from China all for deliveries for this year. And actually, we saw another one here the other day.
You've been stating for quite a while that the backlog has been completely full for 2020. And yet we see these orders to China. The question is actually, I mean, do you have room for more of that kind of orders, I. E, can you actually cope with more? And do you have the capacity to deliver those for this year?
That's the first one.
I can assure you, we haven't signed them if we couldn't deliver them. So we had and when you have that of course you have some supply chain in China which has an open window for that. And therefore we have allocated some capacity in that space. And therefore it's fair saying when we have a situation like we have in China, where we have both ourselves and some of our partners we work closely with that has a capacity and then we will take advantage of it. And of course, you would appreciate if it's manufactured and produced in China, the transport and supply chain challenge in the current environment is substantially less.
So that is how we have planned it.
Okay. And this is not because I understood a little bit that it was related to maybe cancellations elsewhere, which enabled you to handle those orders to China?
No. We don't have any cancellations.
Okay. The second one is regarding your the write down that you've been doing on the Invensys platform. I just want to sort of get a feel for whether this is actually caused by lack of demand or this is more a cost exercise?
It's not lack of demand. I think that is clearly with the order intake that we have. And secondly, it is we were optimizing. We're looking at how can we simplify. And obviously, from a cost perspective, as we have a lot of extra costs this quarter, we're trying to be as diligent as we can.
But it's not a random exercise looking at the platform because we have a 5 year planning of that. So we have obviously looked at other opportunities that look more fruitful for us, and that's why we have a write down.
Okay. So the likelihood of any further that kind of write downs is I assume is very, very low.
And when Lars when you stop a product development namely on this one then it means a stop. And then also related employees and colleagues are then laid off related to it. And that is simply we have the broadest and most deep product
Thank you for taking my questions. My first one relates to sort of back on the profitability for the quarter as well as for the full year. As you mentioned, there is still a plan to target the original guidance, especially on margins of 7% to 9%. Given that the cost headwinds would at least continue to some extent through maybe not the whole of the rest of the year, but maybe into 2Q and into 3Q as well. How do you what's your plan to offset this?
This still meets the guidance or rather what would have to go right to still achieve the 7% to 9%?
Yes. So just to be very clear on Q1 here, we expected that to be more or less in line of what we have presented. Obviously, we didn't expect the COVID-nineteen situation, just to be very clear. But all indication that we have for the full year, and we're obviously doing a monthly assessment of that is there's still a possibility for us to reach the guidance that we have provided to the market. The obvious is the better the best visibility we have now is Q2 as we are in the midst of it as well.
And that is what we're basing our comments on. Then we don't have the crystal ball and no one else obviously. But the low margin project that we are alluding here to that has a big impact here in the quarter, We don't expect in the coming quarters.
Okay. Okay. And just I have a question on in terms of you also mentioned there are some projects just seeing delays. Is there any risk of liquidated damages related to those contracts? And sort of in this context, more specifically on the U.
S. Market, given that it is a critical year in terms of the deadline, there's an absolute deadline of December 2020. So what happens if a project in the U. S. Slips into 2021, both from the customer perspective, what happens to PTC?
Is there any chance for them to still recover and claim 100% PTC even if it slips into 2021? And then what would best us realize as far as well?
Yeah, I'd rather stack back and I think the current environment and the current legislation is it's a hard stop on 31st December then that can be sort of deemed and commissioned and that will then be decided under the legislation. But I think that will be a longer conversation, Sohrab. But if we then look at ourselves, we generally don't have any LDs towards the PTC end of December, but we will have LDs for delays as normally in our industry. And therefore, we work diligently with all customers to get that plan. And that is in more or less all of the cases, a very close partnership with the customer, both in terms of managing the construction on-site and also be ready on-site and getting commission at time.
Okay. Just a quick follow-up. In terms of these sort of projects, maybe not in the U. S, but other geographies, which have seen some delays. Based on your initial conversations at least with customers, how well do you see it potentially being able to invoke or maybe not invoke, but the force majeure clauses in the contract so that you are not liable for any damages?
No, I think it's right. I think probably the whole world is in a kind of a force majeure state right now. So I think we cannot avoid having that force majeure is a legal frame. But of course, it also is a force majeure that actually invites the 2 parties to pick up the phone and start talking about how we are mitigating these things. But if you take certain countries around the world where you have to put for instance some of our specialists, foreign specialists into quarantine where they are put into 2 weeks or even longer quarantine.
Yeah, but then you will have to have some of those replacement and done done and other things that of course will push some of these weeks. And I think there is a generally good understanding that this is not only a Vestas issue. This is a world issue rather than a Vestas issue. So I think generally our customers in the other end wants to have insight. They want to have the deep discussions on the details, which is absolutely understandable.
But I don't think anyone have yet called me and said Vestas is to blame for it, that's for sure.
Okay. Yes. Sure. Thank you very much and hope everyone stays safe. Thank you.
Thank you. Thank you.
Thank you. And the next question is from Casper Blom from ABG. Please go ahead.
Thanks a lot. Two questions from my side also. We saw a bit surprisingly by the end of 2019 that the production tax credit was extended in the U. S. And even with 60%.
Are you already now sort of seeing an interest from customers to sign up for that, sort of possibly making up for PTC contracts that were not signed yesterday and sorry, last year? And do you have any indications on the levels of that? That's my first question. Secondly, given that you've had some delays and so forth year to date from COVID-nineteen and factories being shut down. Are you kind of already sort of to make up for that lost time given that you sort of say that reaching the original guidance is still possible?
Yes. So if I start with the 60% P and C, I think it's too early, Casper, to see the outcome of that. And I think that one will follow the normal pattern. So you will see a signature of that at the end of this year and not earlier. That is not our expectation as everyone is so busy to not only us, but also customer to fulfill the obligations that we have this year.
And then on the factory side, I would say that we've been very good. We have challenges across the world or globally in our industrial platform, but we have been good in keeping up the activity level and at the same time securing and protecting our people from COVID-nineteen, just to be clear on that. The way we have most challenges right now is Brazil and India. Apart from that, we're pretty much up and running, as you heard Henrik said before. And here in Denmark, I think people have been pretty fantastic in going to work.
And we've done our primary focus is really protecting the people, and that has worked fine. And then from a revenue perspective, I would say that compared to last year, Q1 is good. But we also expected that to be the sort of slowest activity level of this year. So it's following the normal pattern when we started the year. And obviously, normal in these circumstances is hard to define.
But it looks what we can see, we are picking up the activity level. And but we obviously need access to sites to make sure that we can execute on the projects.
But just to be very clear, those, let's call it on average 1 or 2 weeks that you've lost around the world, is it able to catch up on that?
We try to balance capacity We try to balance capacity from factory to another factory. And I think generally we have very few factories that only does something that is depending for the whole value chain. So therefore, we are able to compensate that to a large extent. Then we also know that there will be some of the components that are right now in either in shortage or whatever. And there of course we work closely with partners to see how we can catch up with that either with having extra shifts or something.
But that's so far it's working. But there are as Marika kindly alluded to right now in Brazil and India there are some stop and go which comes from changes in the local instructions, so to say, from the country on a day to day basis.
Perfect. Thanks a lot.
Okay. Thank you. And the next question is from Dan Tugo from Carnegie. Please go ahead.
Yes, hello. Thank you. First question is regarding Power and EBITDA. Trying to bridge, so to say, the delta from last year of a little more than EUR 100,000,000 at EBIT level. And then, Rick, you started out pointing out to both currency and warranty impacting here.
Remaining is some EUR 60,000,000, EUR 70,000,000 in this bridge. That's a low margin order impacting as well here and there's logistical challenges and bottlenecks. Can you elaborate a bit on the remaining part here just to get a grip on what exactly is caused by these bottlenecks and logistical challenges? And could we assume basically that these additional costs will escalate in coming quarters as you start, so to say, to actually deliver more? You should think that these costs will not actually be less as you will push through more in the coming quarters?
That's the first question.
Yes. That's a long question, Don. Yes. So if you look at the EBIT, and I think what I said is you have a pure isolation impact from COVID-nineteen, no currency that I haven't spoken about. But the COVID-nineteen in isolation in the quarter is EUR 10,000,000.
You also have the warranty increase. That is SEK34 1,000,000 compared to last year. And you also have service portion being less as the volume is higher or the revenue is higher here in the quarter. Those 3 are a big component together. And then you have, as I said, the or you were saying the logistical challenges, supply chain challenges and delayed projects.
And I think just to be very clear, when I say delayed projects or low margin project, it is primarily a cost factor in those. It's not that it's low priced projects. It is a cost factor because of the delays and the changes in our planning in the first place, costed us more on these projects. And then everything has just been amplified by corona in terms of challenges on the logistical side. We haven't been explicit on the impact from logistic or transportation compared to the project, but they are equally important here in the quarter when it comes to negative impact.
And then if you look further on, yes, I mean what we're trying to manage on a continuous basis is obviously the overall cost and to exercise as we are right now, to exercise volume, it looks more costly. And when and if that will disappear throughout that year, we're not sure. But again, we have said that we're still striving for what we have said at the beginning of the year. And one important factor to keep those commitments towards the market is obviously that we can execute on the revenue and the projects.
Yes. Because that would be my next question. What is exactly required of execution, yes, from Q2 and onwards in order to reach what you allude to that the guidance actually is still achievable. What is required of execution here? Is it flawless?
Or is it actually candidate brave, so to say, that these challenges on the logistics, etcetera, and bottlenecks, they continue because I struggled a bit combining those comments with actually a flawless execution if that is what is required.
That is probably then why we still say there is a possibility, but we don't have the visibility to say and take that. I think you are right now sitting as part of also a ongoing discussion in countries across just to reopen societies within probably the next 4 to 8 weeks. And then of course, that will also make it easier for us to avoid any delays or any people further in quarantine moving across borders. And as I said, just a natural simple thing to get somebody back and across countries in a plane is still causing most of us a super big issue.
Okay. And then just maybe a final one on that one, because where exactly are you seeing the largest risks right now from a geographical point of view? I mean, China is open up. Europe, U. S.
You're also starting slowly to open up now. Is the U.
S. That really, sort
of say, remains the key to, sort of say, reaching guidance going forward.
But you can say here that the planned largest deliveries of course are Europe and Americas and U. S. In particularly. So those will naturally be our biggest risk areas. But as I said, our factories has in reality been fully opened in the U.
S. All along with great support from both customers and other stakeholders. So I think we are positively with that commitment from everyone. But as I said there, we also have to live some of these things week by week.
Thanks a lot.
Thank you.
Thank you. The next question is from Martin Wilkie from Citi. Please go ahead.
This is Martin from Citi. The first question is just about the electricity market overall. One thing we've seen during the crisis is obviously demand has fallen and so wind and renewables are a record level of electricity supply. And maybe this is more question for your customers, but have you heard anything as to whether there are concerns that the system is unstable or there's any sign for the future as to whether or not this is proving that wind can actually be actually a much larger percentage of power going forward? Just intrigued as to if you heard anything around that.
Thanks.
I won't steal your thunder there, Martin, that's for sure. I will probably just add to it. I think here, what we're seeing right now is, of course, there are some short term very high volatility in the energy prices. I think if you were sitting here right now and looking at a PPA for a certain period of time can be difficult to do. But I think as we are now also transitioning into, we came from a pandemic, it is an economic recession.
And then potentially we also have to start dealing with what comes as part of the recovery. There of course we will do ours to do renewable and the agenda on green energy. And I think that is clearly in vogue. It's in vogue with everyone we talk to from a public governmental point of view. We haven't met a country where it's not on the agenda to discuss and also literally just to discuss with us how is it we can contribute and what is it we need to do.
And I think that probably has given something to everyone that there is something you can do in favor of both the energy supply and also the climate in the longer run.
Thanks. If I could have an unrelated question just coming back to inventory. I mean, obviously, you have built up some inventory for the second half. But just to understand, do you think there's a structural need for higher inventory now if there's a risk of bottlenecks and if you might want to have a buffer of components or materials or if items are going to be in transit for longer, should we expect inventory just to be higher as a percentage of sales going forward? Or do you think this effect unwinds fully over the course of 2020?
Yes. And obviously, what we have built up now is according to our expectations in terms of activity level. But I think that is something we will definitely utilize to make sure that we can honor the commitments that we have. But so far, it's according to what we have in front of us. So we haven't exercised that yet, Martin, but that's definitely a lever that we could if necessary.
Okay. Thank you.
Thank you.
Okay. The next question is from Frans Hoyer from Handelsbanken. Please go ahead.
Thank you very much. A question regarding this change or the write down to the in the Q1. Does this change to the Inventor's strategy have a bearing on the minimum 10% EBIT margin target in due course at all?
Yes. Straight answer to that is no. So we are actually internally here saying we are accelerating other parts of demodulation which relates to the inventors. So that's the clear answer to that and that is also still a very big supportive
part
of also getting to 10% EBIT.
Okay. Thank you. And second question relates to the low oil price and I noticed that the EIA was talking about effects of the low oil price on renewable energy in general in due course. What are your thoughts along those lines, please?
I think as I just said to Martin as well in this is, I think short term there will be higher volatility because it's depending on when you have certain parts of the world and industries opening. But I think we also learned a few things around climate and what happens in the last couple of months. So I think there is generally an underlying interest, which I also know I already told everyone here that there could be a trend and stronger support for renewable as part of that. And of course, we are clearly going to invest both our time and effort to accelerate that further.
Thanks very much.
Thank you.
Thank you. And the next question is from Sean McLaughlin from HSBC. Please go ahead. Good morning. Thank you.
Two questions from me. Firstly, on CapEx, How much below €700,000,000 could you go without compromising new product development?
And Sean, just to be very clear on that, we will not compromise. And that's not why we have ceased the or the write down of the platform that we have just been talking about. And we haven't given an exact number, but we clearly see that we are getting below on the CapEx side due to the platform and activities as well related to that from a CapEx perspective. And I think it's also prudent under these circumstances to have a tight look on CapEx and cash as we always do, but it's just again further amplified due to the situation we are in on a global basis.
Secondly, on coming back to supply chain bottlenecks, I mean, how quickly do you expect the ease in Q2 or do these continue through 2020? It's a big delivery year for the industry. We know production, not just your production, but supply chain production has been impacted by COVID-nineteen. And how crucial is this in terms of you potentially reaching the original guidance?
No. But I think we have in terms of the supply chain recovery or quickness in getting back, I mean, it's hard to say. But we have a Q2 ahead of us, and obviously, we have a visibility of that. And we also have a certain visibility simply because we have a full order backlog and obviously a lot to exercise this year. And we are in continuous discussions.
The good thing is we're a reliable customer and we're a reliable partner. And that obviously puts us in a good position with the supply chain. The main the big challenge is really the transportation if we have to change and we have to change quickly. But it's also, I would say, something we have been pretty accustomed to during last year. We did a lot of changes because of headwinds.
But it's obviously a matter of the cost that we have to bear for that as well. But we have certain visibility over the full year. We don't have the crystal ball though, and that is missing. And that's also why we are not prepared to get back to a full guidance of this year. But we have definitely visibility because of the strong order backlog.
The next question is from Claus Abner from Nordea. Please go ahead. Thank
you. Also a few questions from my side. The first goes to the maybe more near term order pipeline. You mentioned Henrik early on this call that some auctions have been postponed maybe a few months or so. But what about project financing?
What is the feedback from clients when they talk about securing financing? That will be the first question.
Yes. I think here, I think it's probably a little bit like it is with the Marieke mentioned in that we got a facility. If you're early in, you will normally have the financing flowing. I think right now you can have less or you can have less or more tight restrictions on closing financing. If you are potentially a smaller developer or others, you could be faced with some challenges because it might be that the PPA or the PPA market doesn't live up to what you are required to perform.
So I think in some of those things, it probably works. I don't know if I could say in favor or disfavor, but at least there is probably the ones that are highly liquid, the ones that are sufficient capital and you know, and lost at least a lot of our customers around the world, the utilities, the large developers and also the infrastructure funds, they have the capital anyway, Claus. So for them, it won't be an issue. At least it's not currently an issue at all.
Okay. That sounds good. My second question is about the production execution issues, what I've mentioned for a couple of quarters. When do you think all of that will be behind you? When is the efficiency on your factories up as it should be?
I think if you ask me that on the 5th May, having dealing with here that we are right now reopening and opening factories on the go, Clausius, that I would refrain from giving you a date and a quarter on. We are absolutely scaling at the same time as we are also being met now with that we certainly have countries that suddenly says you are not allowed. But let me give you just from a couple of examples. We were one of the first one that were allowed to be back in full operations in China because we had diligent protocols, we had list of our employees, we have everything disciplined on that. And we're doing the same in India and others.
So we are among the first one that are allowed to have open. So therefore, our protocols of discipline is second to none. That also proves that when you have 30 cases of COVID-nineteen out of 25,500, we have asked some people to stay home for health reasons. We've asked a lot of people to protect each other, behave absolutely disciplined. And we have more of the 30, we have 20 already recovered.
So when we look at that, then in that quarter, don't ask me when we will be finished in putting the efficiencies up because that's not fair in a sense. But we are comfortable that if we're able to run it with this amount of efficiency under these challenges, we have something to achieve afterwards.
Sorry, but I was not questioning your ability to absorb COVID-nineteen. I'm pretty sure you're doing all the right things. It was more about when you are in a factory that is up and running like you heard in Q4, that you know your pre calc and post calc maybe not reach the same level. So it's more about that part when you're introducing new turbines. Yes.
We know we opened things in Q4 from a manufacturing point of view. And when we get to 2 quarters later, we will normally see the learning curve start helping us when it comes to tuck time and everything else in the factories. But they are of course, as I said here, and that's why I responded that way because when you're then suddenly in the middle of improving the tuck time has a stop and a go and having people out the factories for a couple of weeks then it's difficult to see. So I think we're working diligently through this year. And I will say, yes, let's take it quarter by quarter.
We have actually improved. I mean, if you ask one of the factory managers in part of Denmark, he actually think he has been the most efficient he's ever been in this previous quarter because everyone probably helped each other very well in the factory. So I'm just sort of saying here, let's come back to that when we have a bit more visibility on how the factories work. But generally a couple of quarters after we will open the airbag.
That's good. Thank you so much for the answers.
Thank you.
Okay. Thank you. The next question is from Mark Wazni from Credit Suisse. Please go ahead.
Yes. A question for
me, please. Firstly, on the input costs, I. E. Your supply chain, are you seeing your supply chain try to put through any higher costs given any challenges that they might be facing? And secondly, it's more thematic, but we've had Brexit planning.
We've had not big for you, but we've had it we've had tariff mitigations. We've now got COVID. Do you think generally that you'll be following these, you'll be having a less globalized supply chain I. E. You'll get much more local content rather than moving equipment across borders?
If I take the last one first and I'll give supply chain to Marieke. But I think here, I think it's obvious that countries are taking national decisions right now and probably to a less extent a global decision across. But on the other hand, we are dealing with that. But I also think a lot of our localization of manufacturing are actually put in place to deal with some of these challenges. So I think we have put the supply chain in that works also and actually worked well here.
But then of course, I don't think we should let ourselves influence if a country closes for border transport for a period of time here because I think we will also have learned from that when we come out of this crisis. So we believe there is plenty of room still for global supply chain and also for global companies like ourselves. And in terms of cost to us, Marika, I will leave that to you.
Yes. So obviously, I think related to what Henrik said as well, I think we have a very good and loyal supply chain. And we haven't seen that they are unfairly putting an extra cost to us to make more money. I think we all have a big respect for making things work the best we can. But obviously, as I said, due to delays
and limitations
in supply from their side, there could be additional costs for us altogether. And that we have seen here in the quarter, and we most likely see that also going forward. Then the order of magnitude is very hard to define longer term.
And if we could maybe from Rajesh take the last question.
Yes, of course. Our last question is from Rajesh Singla from Societe Generale. Please go ahead.
Yes. Hi, good morning. Thanks for taking my question. Given that scope of project is quite different from region to region, can you please share some insights into your project margins in Asia Pacific region versus Americas or Europe? Like are they comparable or are they better?
And my second question would be on the supply chain. Do you see offshore supply chain a bit more better positioned than onshore supply chain in current market environment?
Okay. If I start with the first one on margins depending on regions, We have the same thresholds that needs to be fulfilled before we take a firm order intake. And that hasn't changed because of the current situation. So the scope can be different from country to country. But in terms of how and how much we make per project in terms of margin, there's no difference.
We have the same thresholds. And then if you look at the supply chain difference from if they have a more solid supply chain in offshore compared to onshore. I would say if you look at the volume in onshore and the experience with onshore, I would say we have a good supply chain today. And obviously, we're all trying to honor the commitments that we have, we towards our customers and our supply chain. We are their customers.
Obviously, everyone's making a big effort to honor their commitments. And that is what is ongoing and that is also why we can actually present the revenue increase we have here in the quarter.
Okay. One of my follow-up question would be, the order backlog has been quite strong for Vistar. But how much of the unexpected cost inflation like logistics or any other cost in the near term? Because logistics might logistics or any other cost in the near term because logistics might supply chain might take say a few months to come back to a pre COVID level or maybe a few quarters to come back to the pre COVID level. So can we pass on this increase in cost to the customer?
Are there any clause with respect to that?
I think you understand as well as I I mean, we are having a dialogue right now. Honor the commitments at the best cost possible is what we're doing. And then we're obviously obviously pretty confidential and nothing that we want to share.
Okay. Thank you.
Thank you.
Thank you for that. Thank you for your questions and also the interest. So look forward to speak to many of you over the coming days. And thank you for all of us here.
Thank you.