Good morning, and welcome to this presentation of Vestas' Full Year Results of 2019 5th February. And with me here is Henrik and, of course, Marieke next to me. So we will take you through our presentation of the results for 2019 and also looking into what we expect for 2020. So with that, let's get going. 1st of all, key highlights for 2019.
We came out of the year with our highest ever order intake. It ended at 17.9 gigawatts, and that is up 26% compared to our order intake for 2018. That also leads to that we have now a combined all time high order backlog of €34,000,000,000 and we will see the breakdown a little later. We also there see that our full year 2019 guidance were met on all parameters. We ended at a revenue of €12,100,000,000 which actually is in the high And we just have to say coming out of Q4 helped also by favorable weather conditions in the Northern Hemisphere.
We saw EBIT margin of 8.3 percent for the year, and we ended at net investments of EUR 729,000,000 We had a very successful year for the service business, continues to grow 12% up, and we ended with an EBIT of 26% for the year in the service, so another stellar performance of that business. Then we also, end of the year and in January, launched our ambitious sustainability targets, first of all, to incorporate sustainability in everything we do and last but also because it's the right thing to do, and we'll talk more about that a little later in our presentation here. And then of course, with price, we recommend a dividend for the 6th year in a row. Recommended dividend payment is of SEK7.93 per share, equaling to a payout ratio of 30% of our net profit. So with that, let's go into sort of the details.
So when we look at the Q4 order intake, the Q4 order intake ended at 4.4 gigawatt, which is slightly lower than Q4 2018. But also what you would appreciate, we had a more equal spread of large quarters of order intake throughout the whole year of 2019. Especially in Q4, U. S, Poland and Finland were the main contributors to that order intake. Importantly as well in Q4, we saw stable pricing.
We ended at 0.79, which, of course, has the usual relation to geography and scope and turbine type, but we are very happy with the remain stable on the pricing here, which then led us to have an average pricing for the whole year of €0.77,000,000 That, of course, then combines into an all time high order backlog of €34,000,000,000 It is up €7,600,000,000 year on year, an increase of 29%. So for the turbine parts, we are at EUR 16,000,000,000 now. It's up EUR 4,100,000,000 compared to a year ago. And for the service, we are now at our order backlog of €17,800,000,000 which is up €3,500,000,000 in total. When we click on the sort of the regional highlights, if we start with the Americas first, I think it's clear for everyone that we now saw an extension of the PTC clearly favorable and friendly to the industry, but also to the owners of the assets.
So there is a 60% now PTC solution in place for 2024 positive because it creates more parity with solar in that period. And of course, it also leads to greater transparency for a bit longer period. We also say here in the Americas or especially the U. S, we still work hard on the steel and the tariff mitigation because even though that there has been an ease of tension with an agreement of a Stage 1 agreement between China and U. S, it is also fair saying we didn't have any positive effect of that yet from a Stage 1.
When we then look to outside U. S, I think it's fair saying most of other countries in the Americas are still making positive steps towards renewable. Latest here, we see Chile now is allocating 1.3 gigawatt of a neutral technology auction in 2020. We will we see new rounds of auctions in Brazil, and there are various other countries in that region that are making steps into the renewable part. When we look at sort of the detail, we had deliveries of 5.8 gigawatt in the full year of 2019.
It's up 17%. If we then look at the order intake, we ended at 10.2 gigawatts, it's up 64%. Main drivers here, U. S. And Brazil, equally contributing to the increase over 2018.
And we then look at the revenue. We ended at €5,200,000,000 from the region, up 18%. And of course, out of that revenue, service contribute 12% of the €5,300,000,000 We delivered in 9 countries, and we have service deliveries in 18 countries in Americas. We then go to Europe, Middle East and Africa. Goes without saying that the market highlights over here is something everyone talks about that you have a green deal in Europe, which of course puts us on a trajectory for 2,050 towards a carbon neutral Europe, which, of course, will be underlying very well supported and also underlying positive for the trend towards renewable.
We see it in a more sort of detailed part. We see a 2.2 gigawatt onshore wind being allocated in Poland in 2019, and we know there is another gigawatt auction expected in 2020. We have seen a late year Germany smaller option being oversubscribed, which is positive. We've also seen something in the beginning of this year, where I still think we are now seeing a start of Germany, but still with some of the same bottlenecks around permitting and some around the distance rule still being in place and being discussed. We expect to have a 1.2 gigawatt option in Italy, and I think we could make the list even longer in and around Europe because plenty of positives there.
The positives outside just Main Europe is Middle East, Saudi Arabia leading, still aiming for a 16 gigawatt and finding a program for 16 gigawatt of wind in 2,030. And then besides that, fairly positive across also Africa with initiatives for that. The region as such deliveries, 5.3 gigawatts in 2019, up 29%. If we look at the order intake, total order intake of 6 gigawatts in the year, and we had a revenue of €5,400,000,000 in 2019, up 26%. So here, as I said in the order intake, Finland overall, we're leading in Europe among order intake of 21 countries.
So really a positive development. Out of the SEK 5,400,000,000 in revenue, service accounted for 19%, and we had deliveries in 25 countries. And we do services in 40 countries overall. Then we get to Asia Pacific. And I think Asia Pacific, probably the one where we will say from an order intake point of view, a little disappointed.
But of course, that is also difficult when you have such stellar performance in other regions. But here, we will say we see an increased commitment in China. Clearly, they are right now finishing 2020 where there will be new market rules applying 1st January 2021. And of course, we are part of those discussions as well. We see in India that there has still and there will still be some challenges in and around the way the auction are set and orchestrate for players like us.
So therefore, target is still the same 140 gigawatts by 2,030, but we still need to see how we can, together with the Indian government and ministers, open that way of getting the auctions to flow more freely than they are today. And then last but not least, it goes without saying the whole region has their eyes turned toward renewable. And just Vietnam is a good example of where we also seen initiatives and we also seen orders coming through in 2019. Overall, the region ended with deliveries more or less exactly the same as in 2018, 1.7 gigawatts. We saw an order intake being 1.6 gigawatt.
That is down 30%. But I will also just highlight that we are in a region where small orders of a certain size can influence that a lot. And I think that is more down to a timing perspective than it is anything else. And then lastly, but not least, we ended with a revenue of €1,400,000,000 It's up 5%. And therefore, we can also conclude all regions positively contributed to the revenue growth of Vestas in the 2019 account.
In the region, 13% of the revenue comes from service. We did have deliveries in 8 countries, and we did do services in 11 countries. So with that, good way of getting and entering into the service business. Had a stellar year again. Clearly, now we got 96 gigawatt of onshore turbines where we have active service contracts with.
It's a big increase this year. We have seen that we have 18 years of average duration on new contracts signed, which is very long. And we also now deliver contracts in 69 countries across. I will say on key highlights over here, yes, we repowered 1 of the world's most northern wind farm with a 30 years full scope service contract as part of it. We are doing more and more fleet optimization and both improving efficiency and also life extending for some of the older turbines.
And then not least here, we also saw that we took orders for 3.5 gigawatts of contracts signed across 12 countries in multi brand. And of course, there you would appreciate when we have a contract length of 6 years and ending up with 18 years, then there are underlying in the own captures and others a very long contract maturity developing here super positively for us when we look years ahead. And then there is just the normal breakdown of how many gigawatt we look after in the 3 regions below. So with that, I will jump to the offshore, where the offshore here probably had a slightly disappointing year in terms of order intake. But as we also have said all along, it's much longer.
They come in bigger clusters when they do the tenders here. But just the short here is track record. We have 4.8 gigawatt under both installed and operation. We have a pipeline of 2.8 gigawatts under installation and unconditional orders. And then we by year end, we had 3.8 gigawatt of conditional orders where we preferred supplier.
On the highlights over here, we've become preferred supplier on the Hibike Nada offshore wind farm in Japan, which is the first sort of project where we also feature the V174, 9.5 Megawatt. We had a conditional agreement to supply same for the at the Northwester 2. Of course, the first turbine that, in reality, exceeds 9 megawatt, which was the old powering of it. And then below here, you will see the projects in progress in Q4 2019, and I will leave that with you to go to read. And with that, I'll pass over to Marika on the financials.
Thank you, Henrik. So if we start with the full year, you can see that revenue increased. We saw a change of 20%, So really good performance and really good performance in terms of the extreme back end loaded profile we had in 2019. The growth is driven by both Power Solution and Service. You can see also that gross margins are down 1.6 percentage points.
That is impacted by tariffs, transport and raw material prices, as discussed before. And the positive on the gross margin is the sale of the Romanian project. As a consequence, you see that EBIT margin decreased by 1.2 percentage points, and that is again driven by the lower margin presented here. So if we have a look at Q4, record high quarterly activity levels. So really, really high revenue growth compared to last year of 38%.
That is primarily driven by the power solution and again, due to the back end loaded profile we had in 2019. You see gross margin down by 1.7 percentage points, so actually higher than for the full year. And that is, again, driven by the external factors as well as a lower percentage of service on the overall activity in Q4. EBIT decreased by 0.1%, mainly driven again by increased leverage on SG and A. And that is, to a certain extent, offsetting the lower gross margin that we present here.
SG and A cost continues well under control. On a 12 month rolling, you have the 6.2%. So a slight increase compared to in absolute number compared to Q4 of last year to cater for the higher activity level. You an increase of depreciations and amortization, as we have spoken about before, and that is primarily due to the introduction of new products. Altogether, well under control and very slight increase compared to the overall activity level that we have presented.
Service business continues to grow. Compared to last year, you see a 12% increase, and that again is driven by higher activity levels. So for the full year 2019, we delivered 25.8 percent compared to 25.2 percent in 2018. The quarter is also strong. EBIT is €110,000,000 at a margin of 20.8 Vestas, you can also see here, full year activity level is in 2019 is higher compared to 2018.
Net profit is down to EUR 6,000,000 Our share of those EUR 6,000,000 is EUR 3,000,000. So revenue is up 29%. So also not only in the onshore space but also in the offshore space, high activity level. EBIT performance improved year over year, but that was more than offset by additional nonoperational costs. Change in net working capital is negatively impacted by increased level of inventory to cater for the high activity levels.
So obviously, an underlying positive development in the overall business. The down payments as well as milestone payments partly offset that. Payables is obviously a consequence of the overall high activity level that we have presented. Cash flow from operating activities before change in the net working capital. For the full year 2019, higher than 2018.
So good performance from an operating point of view. And we see we are negatively impacted by change in net working interest bearing position continues at a high level of €2,500,000,000 Ultimately, we have €94,000,000 positive cash flow in 2019. Total investment methodology is unchanged. We continue to invest in capitalized R and D as well as primarily modes, I would say. And here, this is a good reflection of the high activity level we have in the company.
So we are investing EUR 729,000,000 in 2019 to cater for the really strong demand that we see in the market right now. Warranty provision and lost production factor. You can see here in Q4 2019, we are consuming less than what we provide for. The warranty provisions made corresponds to 2.5% of revenue in Q4 2019 and is a result of the steep delivery ramp up and the acceleration of new product introduction. The LPF continues at a low level.
Capital structure. You can see that net debt to EBITDA is well below threshold at 1.6 negative. The solvency ratio is 23.3 here in Q4 2019. And the lower level is primarily driven by the increase in total assets. By that, Henrik?
Thank you. It's also the time of the year when we finished 2019. We also just do at least a short recap of where are we in terms of our strategy, what do we see as underlying fundamentals and also give you a bit more of where do we see the market outlook going in both short and long term. So when we first of all look for the growth outlook for the sector, I think it is very positive that when we look from where we are today and towards 2,035, we see a general part, which is called geo electrification, which, of course, is a very strong underlying. At the same time, the demand and consumption in the global world is still forecasted to pick up.
So we are looking into an electricity consumption or demand at least that is expected to grow with somewhere around 40% towards 2,035. As you will also appreciate, there will be some variables in the forecast of when we then look at the energy sources provided and trying to help with that increase in demand. But as you will see here from us, we appreciate renewable will take a fairly large proportion of that increase in demand. I think here, it's very positive. It's also very positive that the forecast numbers is underlying by also what we see as the underlying megatrends in society generally of the focus on renewable.
But last but not least, this time, we also see an enormous capital allocation. So in 2019, 2020, we had a capital allocation to the industry of somewhere around $105,000,000,000 $107,000,000,000 And that is actually there to be expected and forecasted to grow to the renewable part of wind industry of around $200,000,000,000 when we get to 2,035. And that is actually what we are talking about when we look in the very long horizon for wind. If we then go to what we have said here, these are our 3 strategic areas for both growth and investment and also our input. When we look at the onshore winds, clearly, the onshore winds, we have a leadership and we have a leadership both from SAIS Technology and Solution in there.
And what we have seen, of course, is in 2019 that we ended up having new installations of somewhere around 35 gigawatts if we exclude China. And that we see continuing. So when we look towards 2023, then we also see that, that is continuing to be predicted somewhere around the same high level. So there is an underlying compounded average growth rate of 1% to 3% in this outlook from the external. When we look at our service business, it's a business we keep investing in, and it's also a business we keep scaling.
It makes us very proud to see the progress the service business is making quarter on quarter and year on year. And as you can see here, underlying from an installed fleet expected to grow from somewhere around 400 gigawatt in 2019 to around 5.50 gigawatt in 2023. So an underlying continuing growth in these markets, and that leaves with a growth rate somewhere around 8% to 10%. If we then come to the offshore, we've said here we want to remain one of the top players in the offshore wind industry. It is, as you would appreciate, a younger market.
It has high growth predictions, but we also see it becomes more lumpy because certain countries come and do a tender and then maybe pull out and work with the permitting and the projects for some years. So I think here, we will see that the underlying growth is definitely there, predicted to be from around 7 gigawatt in new installations in 2019 towards 11 gigawatt in 2023. So underlying a 10% to 15% increase in new installations when we look ahead, which, of course, also will support the offshore interest of Vestas and of course, M Wow in that sense. Next thing is and for those of you who have seen this a number of times, and I just wanted to reiterate here, we have absolutely we stick with our strategic framework. Why?
Because it works, it supports us on our daily focus. And I'm very pleased to see that every one of our employees around the world know our focus areas and also how we work with this strategy. So expect a lot more of the same in the years to come. So overall, yes, we want to remain the global leader in the sustainable energy solutions, which you have seen examples of on quarterly basis. Yes, we want to lead the global leader in the wind power plant solution, which I think we do with a certain evidence and credibility.
And then, of course, we want to be and remain the global leader in the service solution, which I also think you will agree with that we are absolutely taking a leadership there. When it then comes to our financial medium targets, it stays the same. We are fully committed to grow faster than relatively faster than the market. Yes, we are aiming at best in class EBIT margin, which means minimum 10%. And we will aim for free positive cash flow every year.
And we also aim for return on capital employed by minimum 20%. And as you saw, it was 19.7% in 2019. And then when we get to something that also ties us more and more together is also the sustainability in everything we do. And we have to be honest here in saying, great to have one of the most sustainable solutions in the world, but it's also how do we arrive at that most sustainable solution and how is our journey towards what we now have set out to be fairly ambitious targets to become a fully carbon neutral company in 2,030 without any offset. We also want to work very diligently with how we then recycle and how we get around the 0 waste of our wind turbines by 2,040.
Honestly speaking, we don't have all the solutions there. So there, we're also very much inviting others to partner with us to find some of those solutions. When it then comes to our lower part of our employees here, we absolutely want to be the company, the employer that ties our employees together. So we wanted to have the safest, most inclusive and also socially responsible workplace in our industry. That includes, of course, a higher proportion of women in leading positions and also how we work constantly on our safety records in what becomes a more and more busy execution environment and also a more and more diverse path to execute on-site level.
Last but not least, the square is here. It's, I will say, for some, probably an open invitation to come to us and also work in a partnership of how to develop and make stronger partnerships to actually develop this together. You have seen it. We are mentioning it most recently a couple of weeks ago when we announced the partnership with DSV. Part of it is also driving that sustainability agenda together as global partners.
So with that, one thing outstanding, and that is our outlook for 2020. We aim for revenue here between CHF 14,000,000,000 to CHF 15,000,000,000 so up materially from 2019. We expect services to grow approx 7% from what we can see in the order intake. And we have an EBIT margin here of 7% to 9% for the year, and we have a service margin that is expected to be around 25%, the level of this year as well. And then we have total investments of €700,000,000 which, of course, is very close to what we also saw from 2019 of 729.
So I think that is the outlook for 2020. And with that, I will just hand over to the operator and also open up for questions from the audience.
And our first question comes from the line of Christian Johansen of Danske Bank. Please go ahead.
Yes, thank you. So my first question is around your the lower end of your 2020 guidance and how to get from 2019 to that. But firstly, you made bonus provisions of €107,000,000 in 20 19. How much of that was booked in Q4?
Thank you, Christian. If we start with the bonus, I think what we do is, obviously, we book when we see adequate, as we have done previously. But it's also fair to assume that most of the activity took place in the latter part of the year. So that is reflected also in the provision for bonus. And when it comes to the guidance, we're doing different scenarios as we always do.
So these the €79,000,000 is representing those different scenarios. But bear in mind that we don't we have higher depreciation in 2020. We have no special projects in 2020. And also, as we're growing very fast on the turbine side, the percentage of revenue coming from service is less. And if we also assume that we have a warranty provision at the same level as in 2019 Q4, That will also have a negative impact.
And then you have the regular of wind the overall weather conditions. So all of that is represented in the 7% to 9%.
Okay. Then if you do end up the bottom of your guidance, so the $14,000,000,000 and then 7% margin, will that trigger a bonus payment of similar size to what you booked in 2019?
No. I mean, we are not disclosing the absolute levels of the bonus. But obviously, 7% is the lower end. And again, we're not striving for the lower end. We're striving as best as we can.
But there will also be external factors that will potentially have an impact on the overall performance.
Okay. So it is fair to assume that the bonus level would be substantially lower?
That's right. Yes, absolutely.
Then just the last one on this. You did not mention anything about the impact from trade tariffs, supply chain and so on. So what is your assumption here in your guidance and especially towards the lower end? Is that an unchanged impact? Is it a further headwind?
How should we view that?
No. I think, Christian, it's fair to assume we are at the same level as we were in 2019. So it's fair to assume the 1.5% in all scenarios. Obviously, with the good order intake that we've seen in 2019 is well reflected in the overall guidance for the company. So we have a very high activity level.
We have a good set of order intake. So a lot of the planning has already taken place. And now any changes, as we've said before, to that obviously have a negative impact. So visibility is good, but it's also very, very high activity level that we're planning for.
Okay. And then just the last question for me then.
That was a little bit more than true question, if I wouldn't be
Can you just quantify exactly how much appreciations are of an increase?
It's around EUR 100,000,000 increase in 2020.
Our next question comes from the line of Klas Alma of Nordea. Please go ahead. Your line is open.
Thank you. We have also a few questions from my side. Coming back to the guidance for 2020, when I'm calculating the incremental EBIT margin, excluding the divestment of Wind Farms, then mid range is around 7% and high end is close to 8%. So not a very high level, at least. Is that really the most realistic scenario if you are delivering on your revenue guidance?
Well, a fair question, Claus. But I mean, we have now guided for 7% to 9%. There's different impact that I highlighted before. And apart from those, you have, I mean, the normal weather conditions. But you bear in mind also that we have a continuous steep growth in activity level, And we don't see the same leverage as we are outsourcing more of the activities, and we are also investing quite heavily to accommodate the overall revenue target for 2020.
But I guess it's fair to assume that the quality of the backlog in 2020 is better than it was in 2019?
Yes. Well, if you're referring to a pricing level, yes, you have the 0.76%. It's probably a fair assumption. But it's also we have a very high activity level, very good visibility, but that also means that we have planned for everything. And to be realistic, there could different scenarios could pan out, and that is reflected again in the 7% to 9%.
And then as I backtrack earlier, we have higher depreciations that will have an impact on the EBIT. We have no special projects, as you're referring to. And there is a less percentage stemming from service revenue. And also, you could assume that we would have a 2.5% warranty provision or at the same level as Q4. Those all of those have a negative start from the beginning.
But as I said, we're obviously striving to do better, and that's why we think it's adequate to guide for 7% to 9%.
Sure. But you're using the normal way, So you are aiming at least for the high end of the guidance range.
That's at least what you communicated in the That's why
you put it up, Claus, obviously. Claus, there's 3.30 days as of today to last day of December, and we will do nothing else than strive for that. So that's how we work, but we also want to see that we use the tool in the toolbox to get there before we're seeing it.
Obviously. Order intake 2020, I know you don't guide on this. Will your order intake be restricted by your lack of capacity for 2020 and client might be postponing when they're paying prepayments until 2021? Or how should we think about order announcements?
I think in terms of order announcement there, we will probably say it's a little early in the year. And I think we also here saying we are scaling and we have been scaling both in 2019 and we'll be further scaling in 2020 scarcity of that, then of course, we will look at that cloud. So we scarcity of that, then of course, we will look at that cloud. So we will continue doing that. And then we will have to see certain markets has better availability.
There can be localization restrictions, which, of course, we are better and better dealing with.
Our next question comes from the line of Casper Blom of ABG Sundal Collier. Please go ahead. Your line is open.
Thank you very much. Henrik, as you mentioned, you still have a 10% EBIT margin target for the longer term. And you're now guiding 7% to 9% in what looks to be an extremely busy year. What is it that will take you from 7% to 9% up to at least 10% in the years to come?
That's my question. I mean, it's sort not a surprise. We are working super diligently with our supply chain and what you would appreciate here. When we have said EUR 14,000,000,000 to EUR 15,000,000,000 in what I think is quite a narrow range for our top line in a full year like this, that also means we have fairly good visibility of how that year would sit in terms of turnover. That then leaves us an enormous execution and also an upside in turning some of the tools internally and seeing how can we then execute better.
That means discipline on the projects, trying to become better on controlling that and initiatives we are doing of the initiatives we are doing now where we are putting global partnerships in place to actually drive some of those costs and scale out that will overall, over time, support that we will aim for hitting 10%. As I said this morning to somebody else, let's also just take one step back because when you came out of 2018, you had €10,000,000,000 in turnover, and you came out of a fairly busy year at that point. If we exit this year with €15,000,000,000 we are 50% up. And when we then go in and we also see that, then this year, we would have then increased, yes, another 23%. But if we hit 9% in EBIT, you will have increased your EBIT margin with 35% in absolute terms.
So I think we just need to sometimes also don't get so rushed into this that this has happened 50% up in activity in only 24 months in a global organization like Vestas, where you will also appreciate our assets are not easy just to get around and transport in the world. So I think we're just saying here, we're not putting a quarter, we're not putting a year on it, but rest assured that we are finding the tools to do that.
But is it fair to think about it in the way that right now you are so busy that internal initiatives, optimization, cost out, etcetera, is maybe a
little bit difficult to do and that this
is more sort of a matter for '21 and 'twenty two when you sort of have better rip on the very high activity levels. No.
I mean, what you have seen here is, and I have to give credit to 25,500 employees and colleagues of mine, we have just executed more or less flawless on a Q4 investors' terminology. So we actually come out of a Q4 highest activity ever. There are some of those practices we absolutely need to take with us for the full year of 2020, and then it will look better. So I think there are learnings coming all over. And I think here, we haven't come out this morning and said we have issues or whatever.
We have actually just come out and said we did what we promised and also expected to in Q4. That's the spirit we need to build on in the year we are in to get us to the next level.
Number 2 question.
That was a sneaky one, number 2 question then. Okay.
The outbreak of coronavirus in China, I suppose, is affecting your supply chain quite significantly. I know no one knows exactly where this ends, but could you give some sort of insight to your sensitivity? What do you do if people cannot return to work shortly? And if it's not possible to transfer things into China and also out of China?
Yes. I think it's fair here. We have our thoughts right now are with nearly 3,000 colleagues of ours in China. And personally, I can say I'm probably the last one traveling out because I actually visit China in the 2nd week of January. So for us to see out there right now, we are thinking how can we restart and when it's safe to restart.
And there, we are doing that on a daily basis because it's also how to review that. So good company and also team practice here and investors is every day we have that conversation and update. When we didn't look at it, it's clear that China will then have to restart from something they had to restart anyway because it was just after Chinese New Year. So the country as such are normally good in restarting after some periods like that. Having said that, we are not the one that can decide on when we start in China because the whole supply chain and the country has to decide to restart.
So far, it seems that there are plans to start slowly and restarting in a week's time. If that's the case, then we will see how the supply chain and we mean the full supply chain is there. We haven't made any scenarios because we cannot do our own scenario based on our own thinking here. We all appreciate if China is remaining close for weeks or even worse months, then I think it is the whole world that will have a pandemic force mature somehow. And that, of course, we will have to deal with as any other in the world of this within a supply chain because full supply chain is affected by commodities and components.
So transport is not the highest worry right now. So could we
Okay. Thank you.
Thank you. Our next question comes from the line of Dan Tohru of Carnegie.
Maybe a view on the going into 2020. You are basically on a flat to slightly increasing trend at the moment, and we are seeing your peers are struggling with profitability. Any change in behavior in how they price themselves in the market? And how we should view 2020 ASP wise? That's the first question.
I would say that, yes, we ended the year at €0.79. And as said earlier, the average in the order backlog is €0.76. Percent. It's still a very competitive market. And obviously, we're still expecting a stable price level.
And how the market overall is acting, it's hard to tell. I think we're in a good position. We have a strong order intake. We've proven that we can deliver under tough circumstances or a lot of changes in the overall market. So we don't have any sort of anticipation that, that would be a quick change.
If our competition also get into a different view on the pricing, that's obviously positive for us. If they and what I said, the change is increasing the average prices. That's also what we hear in their communication. But I mean, our focus is obviously what can we deliver to our customers. And so far, our strategy and our view has turned out very well for us.
Thank you. And then just on the Service business. Are there any things unusual, one offs, weather related in Q4 that we should be aware of in this business? And then maybe an elaboration on the lower growth. At least compared to 2019, 7% you're guiding for.
And this slowdown in growth, shouldn't that normally have a positive impact on the EBIT margin that you guide down slightly in 'twenty?
I think let's one thing first. I think when we look at the Service business, when you look at Q4, it is fairly, as Marika alluded to earlier here. We probably did provide as the year progressed, and it's clear that our execution was better in the end of the year. And therefore, Service have had they have a proportionate much larger part of our colleagues' investors on their payroll. And therefore, the bonus provision was much more for them in their top line and their P and L in Q4.
So that's the main reason why you saw a dip in the EBIT in the Service business. Having said that, when you then look into 2020, there are a couple of things here. Normally, when you get better and better top line, you will also see an increased EBIT, and that's generally how we see our Service business developing. But in the service business here, don't forget there will be years that are slightly different from a growth perspective. We are saying 7% approximately 7% here.
But you also now would appreciate a lot of our contracts gets much longer. That also gives us a better visibility, but not necessarily as high turnover in year 1. So there are a few changes. There are just what I say. You would like to have everything at the same time, but you can't.
Now we are getting an enormous extension of the maturity of the service contract, which is super supportive for the business in the long run. So I think that's the main reason, but we don't see any other material reasons for that in 2020.
Our next question comes from the line of Akash Gupta of JPMorgan. Please go ahead. Your line is now open.
Yes. Hi, good morning, Henrik and Marika. My first question is follow-up on China situation. So first of all, to be clear, guidance of 7% to 9% doesn't include any scenario for this outbreak? And then also, if you can say what sort of flexibility do you have in manufacturing?
So let's say, if we have 2 weeks of additional shutdown, is it fair to say that would be something that is manageable? And then let's say, if it is more than 2 weeks, then it could be started impacting the P and L?
I can't give you weeks sort of this is where you just need to start worrying. I think it is worrying as much as when you have a China, then it does affect the whole global world of supply chain because it's right from the commodity part to the components part to, for us, also very high level of assets that we transport. So that is going to hurt us as much as it's going to hurt the rest of the world in supply chain. I think here, we will compensate as much as we can. We do we put those initiatives in place.
But then we also still rely on when it opens again, then we will see how much we can catch up by doing in China. But you will also appreciate they are simply part of our assets that you can't rush or stress more. A blade has to have the time for curing as the blade has to cure. So therefore, that's just the nature of the beast. We are not having in our guidance anything for a China shutdown for much more than potentially what is already now happening.
So therefore, we'll have to deal with China when it comes and if it comes differently to what is in the plan. As of yesterday, schedule is they will start slowly to have supply chain working again as of next week. That's what we sit and deal with right now.
Okay. And then on cash flow, I mean, 2019, so a big outflow from working capital as you're preparing for busy 2020. Can you indicate what do we expect for 2020 in terms of working capital, especially given the U. S. Situation on orders potentially rolling over in 2020?
I mean, as you know, we're not sort of guiding on the overall working capital. But it's fair to assume with the activity level that we have right now, we will continue to use the balance sheet to manage that situation. And then obviously, depending on the order intake for this year, I think that's something probably have to come back to. But I don't see any immediate changes to the level as we speak.
And finally, on this medium term, more than 10% margin target, which we are reiterating today, do you need any minimum level of revenues to hit the target that we should be aware of?
You can't make that linear programming. So I think it's more how do we get our improvement and our scale and therefore also to some extent our scale advantages and therefore cost out of what we have as a top line. You can't make that assumption.
Thank you.
Thank you.
Our next question comes from the line of Sean McLoughlin of HSBC. Please go ahead. Your line is open.
Good morning. Thanks for taking my questions. Firstly, on offshore, I want to understand what's driving the region and expected profitability and what you expect in 2020?
Okay. Yes. So as you can see, the activity level remains. And obviously, net profit is low. It's only EUR 6,000,000 But as I said, EBIT level is reasonable.
We're not disclosing that here. But the primary reason for the lower net profit is really some operational costs related to the project in the U. S. And we are expecting the same level of net profit in this year as well. So pretty flattish and pretty
low. Secondly, coming back to the 2020 guidance. Henrik, you mentioned the tighter range relatively now. What is driving this?
If you are comfortable, then of course, you can put a tighter range on the top line. So we've said 14 to 15 percent because we have a very high visibility of both projects and orders for this year.
And how are you preparing for the time, specifically for the U. S. In terms of blade outsourcing, in terms of components and in terms of actual capacity in the U. S. And what's going to be a huge year?
Yes. I mean, it's the normal planning. I would say that the tighter revenue guidance is a reflection of the overall visibility. The planning of any given year starts when you get a firm order intake. So a lot of the planning has been made.
You also see that we made a lot of investments to accommodate for the capacity increase. You see that we have a high inventory. So this year, in terms of challenges, is really execution. And obviously, whatever we can have an impact internally, we do our best. And then externally, there will be, hopefully, not too many factors that we cannot influence.
But it's all has been planned for. So it's nothing
Thank you.
Our next question comes from the line of Rajesh Singla of Societe Generale. Please go ahead. Your line is now open.
Yes, hi. Thanks for taking my question and good morning everyone. My first question is on that we have been hearing that the orders which you had received or the industry had seen in 20 eighteen-twenty 19 had better margins than the orders which were from like 2016, 2017. So your EBITDA margin guidance looks a bit weak. So can you please give me some more color on that guidance with respect to the pricing environment?
Yes. Obviously, before the big drop in the overall price levels when the auction started, there has been a decrease in the overall margins. I would say that most of the really low margin projects we exercised last year. We're at a different level today, but the overall price picture in the order backlog is $76,000,000 And remember, we ended the year at $79,000,000 So on a margin level on per projects per se, it's not the challenge. The challenge is really execution of 2020 because the activity level is very high.
So we have invested. We continue to invest. We have a high inventory. We're managing as best as we can the supplier base. So 2020 is a lot around execution as flawlessly as we possibly can, and that is reflected in the 7% to 9 percent EBIT
margin. Okay. My second question is general observation on the lowest production factor on Slide 21. It seems to have increased slightly versus last year. Can you please share your views on that?
Like how do you see whether there is any reason for any concern in that or not?
Yes. No. Overall, no concern on the lost production factor. But bear in mind the higher activity level that we have, which means that we the person the people we have to service the turbines, it might take longer, and that will have a consequence on the lost production factor. But at this point, there's no impact on the overall EBIT from the lost production factor.
Our next question comes from the line of Martin Mukie of Citi.
It's Martin from Citi. Just a couple of questions. The first one is coming back to the service growth. I mean, you mentioned that the duration of the contracts are getting longer. But if I look at your service installed fleet, it was up I think 12% last year to 96 gigawatts.
Presumably, it's going to be growing at least that given your revenue guidance in 2020. So the same percent growth in service does look lower than the installed base growth in per service seems to be growing. Just to understand, is it just this phasing over longer contracts? There's no sort of adverse pricing or anything like that? And then I've got a second question on the turbine business.
Thanks.
Okay. But as I said, there is no adverse pricing in there, Sosh. But of course, when you get to a 30 year and if it's new turbines you put up, then there might not be that high turnover in start of the contract. So it is life just as a fact. So I think we are helped by a lot of longer maturity and we are helped by that.
And as you are rightly saying, we have an underlying fundamental very strong growth. But the other factor in that, of course, are that contracts are becoming longer and longer. And that probably moves a couple of percentages away. Then I always say, well, also just again there, 1% of a €2,000,000,000 business is €20,000,000 in variations. Yes, let's see when we get into the year if it's €7,000,000,000 or if it's €8,000,000 or if it's I think we should there be careful about judging too much on exactly the 7%.
But that's what we see right now, and that's fundamentally steaming from the way the contracts are running we are taking in.
And then the second question, just coming back to the turbines themselves. I know that steel prices are not necessarily as easy to look at because there's so many different products that you use. But if steel pricing is probably lower now than it was a year or so ago, I appreciate you've obviously got longer term contracts and therefore a lag between orders and deliveries. Just to understand, are the raw material input costs for you effectively locked in for 2020? And therefore, if we do see changes to that, that's more of a 2021 impact just in terms of hedging or long term purchase agreements?
Yes. Martin, I think you answered the question yourself. So yes, you're it's fair to assume. As I said, when we have the firm order intake, we lock in everything, including steel. So there's no immediate upside.
We also have a pretty well covered 2020 reflected in the revenue guidance that you have seen. So if we would have any in for out orders in 2020, that would have a positive impact from a steel price perspective. But apart from that, we're well set. So we don't see the upside from steel at this point. But yes, absolutely, in 2021, you can see the positive impact.
Our next question comes from the line of Klaus Keel of New Credit. Please go ahead. Your line is open.
Yes. Hello. Two questions from my side as well. Henrik, you said that you had flawless execution here in Q4. Maybe it's just me that it has been overoptimistic on your behalf.
But I must say, I'm not that impressed by the margins in Q4 actually. And especially if I look at the project business, it seems like they are falling behind my at least my estimates. So could you talk a little bit about that? And secondly, Marieke, did you say that we should expect a net profit for the joint venture in the range for 2020, in the range of what they delivered here in 2019. Because if that's true, then there is at least a major deviation compared to my forecast.
So if that's correct, then what on earth is going on there?
Okay. Maybe I should address that. I think you will hopefully, Claus, you will appreciate that, as I said, when I say flawless execution, I also measure it as how we're actually dealing with, 1st of all, the challenges we have thrown upon us throughout 2019. And of course, for me to see suddenly that in the Q4, we get things much better. And we know we can do that because we have projects where we have a pre- and a post calc, which we complete every day.
And when we start getting better and have better outcome of those, then the discipline go up. So therefore, we are making progress. No one just wakes up from one day to another and then are perfect, but we are on that journey. So therefore, for us, it has been really, really good to see that we have made an inroad to that excellent execution in 2019 Q4. If it hasn't impressed you, then I'm sorry.
But then hopefully, we can continue that journey in the coming quarters because that's what we are aiming for. But from an overall year, I think we can definitely say that Q4 brought us back into where we wanted to be from a run rate perspective.
Yes. And then if we have a look at the Offshore again, yes, you were right, Claus, in assuming that the same level of net profit, that's what I said. But that's also stemming from, at this point, a lower activity level in the offshore space or in MHI Vestas.
Okay. So it's due to lower activity rather than some nonoperational issues?
Yes. That's what we had in 2019.
Okay. So the drop in earnings in 2020, that's due to lower activity and not nonoperational issues?
Correct.
Our next question comes from the line of Lars Heindorff of SEB. Please go ahead. Your line is open.
Thank you for taking my questions. The first one is regarding the guidance. If you decompose the guidance, it suggests that at least the high end of the range, a revenue in Power Solutions around €13,000,000,000 And my question is, is this a reflection of you having capacity limits in terms of production or rather that you don't expect more orders coming in there? That's the first one.
Maybe you've I maybe didn't see that. I mean, we know right now that we have put everything into 2020 we can possibly visibly see us delivering on. And you'll probably appreciate there that's quite a step up from where we ended in 2020. So this is, yes, absolutely about getting the activity and the scale to match up, so not disappointing any customers. So for us here, we are fairly well covered in visible terms for that 2020.
So we have no intention of going around to find much more volume for a 'twenty, that's for sure. But that also means when you then do the math, of course, there is also on the EBIT margin, there is a mix effect because, of course, as you're rightly saying here, if you do a SEK 13,000,000,000 from the Turbine Solutions side, then you will also find there is a dilutive effect seen from that the service business is therefore a proportionate lower part of our business at a margin side. So please also are aware of that.
Yes. I'm aware of the latter. The other part is regarding farm downs, including the Americas. If I understand it correctly, you include farm downs. But I also, if I recall it correctly, you believe that you have 2 projects, 1 smaller in Africa and one in Sweden.
Do you expect any of those to materialize during our de farm down during 2020?
Yes. If you're referring to the one in Africa, I mean, that is commissioned, so it's up for sale. And how that will end up, I think, remains to be seen. Shouldn't expect any big EBIT contribution from that project. And then the Swedish project that you're referring to, together with PK and Waterval, is commissioned in 2021.
So that will not have an impact on 2020.
Okay. And the African project, when you say that's not any sort of big numbers, I mean, I assume this is I mean, can you give us an indication of where we are roughly?
Yes. I mean, even if we close and if something comes into the numbers in 'twenty, we're talking about really low single digit numbers.
Okay. All right. Thank you then.
Thank you.
Our next question comes from the line of Mark Freshney of Credit Suisse. Please go ahead. Your line is open. Just bear with me one moment. We seem to have an If we could go to the next question from the line of Supriya Subramanen, and we'll bring Mark Freshney back.
Morning. Yes, thank you for taking my question. Just a couple of quick ones remaining. On the guidance for 20 20, in terms of the revenue pattern, is it likely to be more evenly spread or sort of usual seasonality or
so prior. We see a more normal distribution, but please remember that a normal distribution is still back end loaded, but it's not to the same extreme that you have seen in 2019.
So something like forty-sixty as we've usually seen in the past?
Yes. That would be fair to assume that.
And second one is on your sort of long- or medium term margin guidance of minimum 10%. Now do you have any internal targets on sort of time lines of when you all are looking to achieve this? And also, is this a true cycle margin assumption? Or that once it is hit every year would be minimum percent?
I'll just say here, we don't have an internal it's the same as we don't do internal differences in either our budgeting and other processes. So we align the 2. But let me put it this way. We are relentless in aiming for that 10%. So I'm pretty sure everyone will hear internally as well.
That's what we talk about. That's what we have as the target. So we are aiming for that. We don't have a specific date and quarter for it.
All right. All right. Thank you. That's it from my end.
Thank you. Thank you. We'll now go to the questions from the line of Mark Freshney of Credit Suisse. Please go ahead. Your line is now open.
Hi, thanks taking my question. Can I please ask on the long term minimum 10% EBIT margin aspiration and how you would arrive at that? Because I mean, as I said, last year on the margins you made in 2019, you still earned a 20% return on capital. Profitability was still good. Underlying cash flow generation was still good.
What is it that gives you confidence that in the long term as industry leader, you should be making minimum 10% and not say minimum 9% or minimum 8%.
Two things, and then probably you could add also. We also had an EPS growth in '19, which is also good. But as I said here, for us, we find levers, and we do believe because some of the exceptions we had, we believe are exceptions that over time, we will be able to deal with in 2019, of course, leads us to 10% EBIT. So we have been there before, and we will come there again. And some of the things you're seeing us announcing are also things that will provide us with some of the scalability we need to get towards the 10%.
Then you will also have to appreciate that while we are celebrating here a historic high order intake and also a historic high backlog, that some of that also triggers that we have to do an increased localization. And some of those localizations both drives resources internally. It drives not even a lot of investments. So therefore, you will also see the depreciation going up. And that's part of us scaling to another level of activity in investors.
So I think there are a number of levers. And some of those, we will have to, But it definitely it should come with only one gain, and that is that stakeholders can see here. It's for the benefit of what we end up contributing back to shareholders as well.
Our next question comes from the line of Franz Heuer of Handelsbanken.
Thanks very much. Just to clarify the margin contraction in the service business in Q4 2019, was that then all explained by the leap in bonus provisions?
Yes. The vast majority is because of the leap in bonus provision.
Okay. Understood. And your question regarding your long term vision and the bigger growth that is predicted for renewable energy. And the renewable energy definition is obviously wider than wind and how what are the pros and cons of wind maintaining its position within renewable energy in the in that kind of time perspective?
Well, as I said, it's always dangerous to sit here and be quoted for something that reads as far as 2,035. But I think, as we all say here, there are 2 main sources to the renewable, that's solar and wind today. And I think we also see a world where we become better and better in combining the two sources in the renewable. And I actually have to say, if I look at the graph there, there is no chance that existing wind industry could scale to take it all. So therefore, it is actually a partnership and a pairing for both solar and wind to try to address that increase in demand.
So I think we are working better and better together in also trying to do hybrids and other solutions around the world where solar and wind will be a good combination. So we are welcoming that in the Renewable here. Maybe we could have then the last question.
Our next question comes from the line of Ajay Patel of Goldman Sachs. Please go ahead. Your line is open.
Good morning. I just wanted to ask on Slide 13. I mean you highlighted external factors. I think with Sinfinum, the Nutrieno 1.5% on your margin for tariffs, transports and raw materials in 'nineteen and maybe a similar level for 2020. To what degree or how fast do these higher costs get passed through to the end user over time and result in, if anything else stays static, an improvement in margin?
And then the second question I had was just on investments. You're clearly investing in new product line and that will and as well as higher activity, you have a more elevated investment cost. But and just on the do we have a fallback of that investment, at least on the turbine side, as the R and D and investment sort of works its way through? So you have a period where maybe that investment may be a bit lower from the $700,000,000 And is that more sort of imminent in the next few years? Or is it much further out?
I just wanted to understand that profile.
So if we start with the 1.5%, which has been the overall exposure in 2019 and continue into 2020. And as I said, yes, there are changes in the raw materials, especially steel, that is going down. But as we have good visibility, it will have less of an customers. And not to be too explicit as it is pretty competitive. And if you look at our average sales price compared to competition, I think we're doing a pretty good job in maintaining the stable price level.
And that is obviously also a reflection of the exposure. But I think it's much more into it in terms of customers burnt their fingers a little bit also on being too opportunistic on players that have had issues previously. On the investment level, yes, you're absolutely right. We are investing heavily now. We're investing also in dramatically, slightly in 2020, not dramatically, but slightly.
But again, I would say a normal investment level going forward is probably in between €500,000,000 to 700. And the lower range, obviously, depending on how many new products comes out, how much we're capitalizing, but also in terms of investment in capacity. But also bear in mind that we have been investing quite a bit. We continue to utilize the balance sheet, our strong balance sheet and consequently, keep inventory.
So just to follow-up on that point. Just to take those 2 bits together, is there anything that suggests that as we go to full year 'twenty one, that the U. S. Tariff issue, to some extent, dissipates, transport issues ease, raw material prices, if anything, become a tailwind rather than a headwind. And then the easing of investment into 'twenty one wouldn't naturally help margin.
They offset being maybe slower, lower volumes and the reverse effect of operational leverage. But is that logic right? We've been only about the quantants, but
I will say, I mean, we could paint a picture of that much tailwind, and that will be wonderful because that will solve almost most of the things without us doing much. So I think a combination, yes, if that's what we are helped with by externally, we will also clearly give you that. But as I said, you are addressing something that is not here as a fact yet. So we will comment on it if and when they are proven to be that much of a tailwind.
Fantastic. Thank you for that.
Thank you.
Okay. With that, thank you so much. We look forward to meet and see many of you over the coming weeks. And again, on behalf of us at Vestas, thank you for your attention and see and speak to you soon.
Thank you.