Hello and welcome and good morning to this Vestas Q2 presentation. It's the voice of Henrik Andersen, and I think that was probably the best introduction I could do. From a personal point of view, I look very much forward to connect and talking and seeing many more of you over the coming quarters and not least when we do the particularly roadshow as well. I also think it's in good order here to thank my new colleagues here in investors for also presenting the Q2 results. As you would appreciate with a start date of 1st August, I owe them quite a big thank you for doing what they have just done in Q2.
So with that in mind, let's go into the presentation here. The usual surely, it's the highest ever quarterly intake we have had. Surely, it's the highest ever quarterly intake we have had, 5.7 gig in the Q2, and we'll come back more on that, but also includes the first order for our new Inventus platform. We had a total revenue of €2,100,000,000 It's slightly down compared to the Q2 of 2018, ended with an EBIT of €128,000,000 equaling to a margin of 6%, where we say as well it's impacted by surely the competitive market. We have some tariffs.
And then of course, we are looking into a very busy second half of the year. We had the best quarter on service yet, strong service performance. We are up 15% in revenue. And we had an EBIT margin of 28.4%, so a very good quarter in service. We also saw increasing profits from MHI Vestas Offshore.
And as such, we'll talk more about it, but it's all about the execution in there. So net profit of €22,000,000 and means an underlying improvement of €49,000,000 year on year. In terms of our outlook, we have narrowed our guidance for 2019 in both terms of revenue and EBIT, surely down to that we also see an improved visibility for the full year at this point in time. If we on the second slide here, if we look at the quarterly order intake, as we said here, 5.7 gig in Q2 2019, and that was 1.9 gig higher than it was in Q2 2018 and therefore representing almost an increase of 50% Q on Q. But also really nice to see that it's above the Q4 2018.
Particularly here, it's U. S, Brazil, Finland that were the main contributors to the order intake in Q2 and a really good strong quarter. In terms of the ASPs in the quarter, we ended at 0.75%. And as we say here, it's stable and it's also down to that in Q1 versus Q2, we have a slightly lower part of the EPC in Q2 versus Q1. As always, there is differences in terms of geography, the turbines and also the scope, and that's I'm sure, we will talk more about.
In terms of the status of the order backlog, it is now all time high, more than €31,000,000,000 in. We have a year on year increase of 37%. So on the turbines, we are close to €16,000,000,000 And on the services, we are just above €15,500,000,000 which is very, very well supported when we look into the future of Vestas. When we come into the regional markets, surely we start with the regional highlights from Americas. Again, a continuing strong demand in the U.
S. With the current PTC. We know it's a very busy 'nineteen and 'twenty before the PTC goes down in 'twenty one. And at the same time, we also appreciate in the U. S.
Right now, we both have the tariff and steel mitigation, which we are working closely with through our supply chain and also with our customers. In Latin America, we have seen the new government in Brazil introducing the 1st auction, and we expect more auctions to come also in the coming quarters, so really well. And we have seen Argentina announcing an auction in second half of twenty nineteen, which, of course, will be discussed considering Argentina's current state. And then we've seen an auction in Colombia as well-being announced. So deliveries, half year 'nineteen versus 'eighteen, up almost 60%, mainly in the U.
S. And then we also see Argentina, Canada and Mexico contributing, as you will find in the announcement, to that number. Order intake more than doubled compared to first half twenty eighteen. Again, U. S.
And Brazil are having the main contribution to that. And again, U. S. Continues to be at a very high level. In terms of the midterm volume outlook, as you can see, we used the external source Wood Mackenzie.
And I think it's fair saying they, of course, put in that there will be historic high installations with the PTC at 100 in 'twenty and then some sort of drop off in 'twenty one, where we also know that part of that will be mitigated, for instance, from Brazil and other parts of Americas. If we go to Europe, Middle East and Africa, I think it's fair saying here Europe right now positive from all both EU and the countries. We see a 2.5 gig auction being confirmed in Poland for the second half twenty nineteen. Being in Denmark, we also know we have had a new government that has introduced 70% greenhouse gas reduction by 2,030, which means also means and targets and also tools to achieve that. And then in Germany, it seems that we still have the under subscription of the auction in Germany continues.
But I think from a German government perspective and country, they definitely have still the commitment also to speed up the retirement of the coal fired power plants and therefore also committing strongly to renewables going forward. I would say in the rest of the region, Middle East and Africa, you have also seen us that it's probably coming down to country by country. So there are countries that announce themselves entering into the renewable arena and some picks up some of the former programs they had, and we'll deal with them country by country or order by order. In terms of deliveries in first half of twenty nineteen, up 20%, mainly in Spain, Italy and Ukraine, where we also sort of mitigate the decline we have seen in Germany in the first half of the year. Surely, in the region right now, we see that there has been a relatively low level of deliveries in the first half, but therefore there is also an expected back end loading of delivery for second half of the year.
In terms of order intake, slightly lower than first half last year. Finland, France are the main contributors, offsetting some of the shorts from Italy and Sweden. And then we sort of had Poland, which were 2 orders where we see that, that is sort of the restart of that renewable market again. In terms of the external midterm volume outlook for the region, we see that, that is actually here looking to increase both in 'twenty and 'twenty one, signaling that EU generally takes up a positive, and that will mitigate surely some of the effects from potentially Americas decline. We see Germany in this number going from somewhere around 1.5% in 'nineteen towards 4, 4.5 in 'twenty one, which of course is very positive.
When we come to Asia Pacific, we see an increased commitment in China. We've seen the auctions and the tender started. And of course, that's well supported by the feed in tariffs, which sort of have also a 2020 timeline to it. So there is a positive market ongoing both in the short but also in the longer run. In India, we have seen that the ambitions are still to achieve 140 gig in 2,030.
But I think it has and we have all seen that some short term uncertainties around how that is being executed and how that is being supported by also the permissions locally. In the broader Asia Pacific region, it's positive to see the countries generally committing more and more to the renewable energy. And here, we recently most recently saw South Korea doing exactly that. In terms of deliveries, we are 35% lower than first half of twenty eighteen, primarily driven by Thailand, China and India and as a comparison. And then we see Australia remains pretty stable in here.
Good increase in order intake, 1 100% up from H1 2018. And therefore, we see an increased growth from or still a strong order intake from Australia. And we see China and India also contributing to the increase here, as I mentioned, well supported by the Chinese feed in tariffs. From an external point of view and the midterm volume outlook, surely they put some reduction in China post 2020 and the current policy there. And then that will be, to some extent, sort of mitigated by some of the other areas and still with an uncertainty to India as well.
So overall, the region is forecasted in 'twenty one to come somewhere around 15% lower. If we then go to our own business, starting with the service business first. Clearly, we have had, as I mentioned, a very strong quarter. You know us well. So we have 36 gigawatt under service with some equals to somewhere around 42,000 turbines, which gives us an enormous coverage in that.
67 countries where we have active operations and those still goes up depending on when and where we get the service contracts on also some of the new countries. We have an average backlog around 8 years. But as you will also appreciate and you have probably seen in our order intake, the service contracts generally both as new and renewables becomes with a longer and longer tenure in general. Key highlights here. We had the 1st Inventus order in Finland, which is supported by a 30 year service agreement.
We have had a couple of multi brand deals. We had a 300 megawatt multi brand deal in the U. S. And then we had a 14 year full scope service contract with an extended multibrand project in Europe. And in lower right hand corner, you can see the split where we are a service business, which is very, very well represented in Americas and EMEA and building well in APAC as the countries come along.
If we then go to the offshore, I think the heading says very much of this. It's the operational excellence that also secures how we execute on the existing projects. And this is really where we can see and Marika will come back to the numbers on that one where we can see turnover goes up because we start having a real execution and installation of the turbines. We have so far 1100 turbines installed across 30 projects, 4.6 gig. We have a pipeline, which is under installation, unconditional of 3 gigawatt.
And then we have conditional orders and preferred suppliers of 2.2 gigawatts currently. I think the key highlights here in the quarter and first half is we've had a massive improvement in the installation time for the Norfolk project, where we are literally cutting the installation time in half compared to where we were 3 years ago. And then we have had the inauguration of the Brokom Rifgrund Zweig, which is 56 turbines of V164. And actually today, that's the most powerful turbine installed in the German offshore wind market. I think in the lower right hand corner, you will also appreciate, as we will say, a lot of activities is ongoing and projects in progress from Q2 are mentioning it here.
And really nice to see the progress in how they execute on that pipeline. With that, I will hand over to Marika on financials.
Thank you, Henrik. Then we start with the income statement. And here you can see compared to Q2 in '18 that revenue is down 6%. And Power Solutions have, as we've said before, a very back end loaded activity profile. But you can also see here that service revenue increased year over year, so a continued good performance and also highlighted by Henrik earlier.
As a consequence of the lower activity, margin is down 4.2 percentage points. And you have, as we also said before, we have a negative impact from the orders that we took late 2017. Also beginning, I would say, in 2018, we are starting to phase them out quite significantly. So Q2 is still impacted by those projects. We also have external factors such as tariffs and raw material price increases, and that's also impacting the quarter here.
Again, EBIT margin down as a consequence of the above by 5.5 percentage points, and that is primarily driven by the lower gross profit and an increase in the SG and A cost. If we have a look at the SG and A, that continues to be well under control and is one of the controllable parts from our side. You see that we are going up to 7.2% compared to Q2 of last year. That is a reflection of the activity level that we anticipate here in the second half of the year. So I wouldn't say any surprises.
It's planned for. Depreciation and amortization increased by EUR 23,000,000 year over year, and that is primarily due to the introduction of new products. If we have a look at the service business, we see a very strong service performance. And here, you can see that revenue is increasing quarter over quarter And also, the EBIT or the profitability is, in the quarter, EUR 28.4 percent. As we have said previously, you will always see some fluctuations in between the quarters, but their performance continued to be very strong in the service sector and primarily due to really high quality but also a very fruitful cost out program in the service business.
MHI Vestas Offshore, you heard about the highlights in the joint venture from Henrik. And here, we're talking a little bit more about the P and L. Revenue is clearly increasing compared to Q2 of last year. We are starting to install the V164, obviously, having a positive impact on the P and L. And profit as a consequence of the installations increasing to EUR 22,000,000 here in Q2 of 2019.
The change in net working capital is, build the inventory And again, as planned for because of the high activity level we see in the second half of the year, that is offset by higher down payments and milestone payments, but also an increase of payables as the activity level is very high. Cash flow. Here, you can see that cash flow from operating activities is lower compared to last year. And the positive is obviously the net working capital also having a positive swing compared to last year. And we are delivering free cash flow before financial items or investments of negative but a positive swing compared to last year.
So as I said before, this is driven by the working capital an uptick compared to last year by EUR 54,000,000 an uptick compared to last year by SEK 54,000,000 again, very much as planned for. This is to cater for both the all the new products or the capitalized R and D as well as capacity and the planning for the second half and to also plan for the high order intake that we have at this time. The warranty provision and lost production factor continues to be high focus, so high focus on quality. You see that we continue to consume less than what we provide for. But also remember that we increased the provision as we have a lot of new product introductions.
But well performing loss production factor continues below 2%. So quality, again, very high on the agenda for Vestas. The capital structure, net debt to EBITDA, well below threshold, I would say fairly flattish compared to Q1 of this year. So a very good performance on the net debt to EBITDA. If you look at the solvency ratio, it's 22.1%, and that's clearly below the end of the year target.
And that is driven by the increase in total assets. I will also talk about the outlook for 2019. And we see here on the revenue, we have changed the guidance to or uplifted the lower end to SEK 11,000,000,000 and the higher end remains at SEK12.25 billion. So again, the lower level increased EBIT margin as we have more visibility of the remainder of the year and also the cost for primarily the tariffs and the transportation, we have decided to narrow the guidance to 8% to 9% compared to the previous outlook of 8% to 10%. Total investments also catering for the higher activity level as well as the capitalized R and D, but primarily the higher activity level as a consequence of the order intake, we are now guiding for an approx €800,000,000 And the service, not the least, on the revenue side, is expected to grow to approximately 10%, and we are anticipating a minimum of 24% on the EBIT line for the Service business.
So that's an uplift compared to approximately. By that, I open up for Q and A for the quarter.
Thank And our first question comes from the line of Christian Johansen from Danske Bank. Please go ahead. Your line is now open.
Yes, thank you. So my first question is regarding these factors, which you argued for the reason for the change to EBIT margin guidance. So you mentioned tariffs, transportation and scarcity in the market. If you can just elaborate a little bit more on those. So first of all, tariffs, you previously said that you expect tariffs to increase cost of goods sold by up to 1 percentage point.
Is that still the case? And also in terms of transportation, you mentioned rerooting. Can you go a bit more in detail on what is going on here? And the scarcity in the market, if you also highlight what should we sort of think about that? Is that simply your supply, raising prices?
Yes. And I understand your question, Christian. And what we said last year, we said that the tariffs that we knew at that time would have an impact of 1.5% before any mitigation. I would say that we have been good at mitigating the additional cost that we anticipated for this year. Unfortunately, there has been changes in the tariffs meanwhile.
And when we say that we see an increase not only in the tariff, but also the fact that the positive is that we can definitely reroute because of the tariff, because of the overall global platform that we have. The negative is obviously that this rerouting costing us. So the more we could plan for 2019, the better. And now we have surprises, I would say, from external factors. So there is definitely a scarcity.
Also remember that the type of products that we are shipping or is very bulky. So there's definitely a scarcity from that perspective. And if we have other conditions, so we have to do more land transport that we plan for, that's definitely also costing more. So it's a double effect on both the new tariffs as well as rerouting that we see at this point in time.
So just to understand, the rerouting partly reflects tariffs and sort of changed supply patterns, but it also changed reflects higher volumes or
I mean, obviously, we have a high activity level, and that's the positive as we see it. And we are sort of changing or narrowing the guidance as we see. We have a very strong order intake and as a consequence very well covered for 'nineteen. But there are surprise factors that we need to change the planning and changing of the planning because of tariffs and rerouting is a cost factor as the prices have increased.
Okay. I understand. Then my second question is sort of on the same topic, but it's I mean, obviously, you highlight this as surprise factors. How will you mitigate and compensate for this going forward? Is it possible to raise prices?
I mean, I would say that you see that in any given year, the more visibility you have over your TOR or installations that you will do in a year, you plan for it well in advance. That's the cheaper option for us. And anything that causes changes of that and tariffs obviously being one of them is costly. And as if you have a signed contract, I think you know as well as I do that it's very hard to come back and ask for something. But obviously, the
price picture that we see right
now is very stable and only with customers but also with suppliers, is ongoing at this point in time.
But in Q2, you signed a lot of contracts. So do these contracts then reflect the surprise factors that you mentioned?
I mean the contracts that we have signed already, we cannot change. But ongoing, we have this supplier.
All right.
And our next question comes from the line of Klaus Elemer from Nordea.
Thank you. Also a few questions from my side. The first is also about this change of EBIT margin guidance, because one thing is 2019, but the redo over to 2020 is probably more interesting. And I know you're not guiding yet on next year, but maybe you could put some color to the headwind we should reflect in our estimates. Broadly calculated, your change of guidance is €100,000,000 more or less of profitability impacting only a few months of 2019.
So if you just do the math, the impact on next year could be even more severe.
Yes. And as you say Claus, we're obviously not guiding for next year. But if you look at the order intake that we have had and continue to have, we have a very positive view on the market and obviously a fairly good visibility of 2020. We're also launching a number of new products that are very positively received. So I cannot say anything, but we're having a positive view on the 2020.
I think when you look at the numbers and all the changes that we're seeing and happening in the market, I mean, we are pretty successful in mitigating those. Then of course, we cannot mitigate 100% of all the surprise factors that are out of our control at this point in time.
Sure. But would it be fair to assume that you will have a larger negative impact next year than this year? So if there is a SEK 100,000,000 headwind this year, it will be even larger next year?
I mean, we are in the planning of next year. So I mean, you cannot draw those type of conclusions, Claus.
Okay. And then a question regarding share buyback. In the past of this, you have announced share buyback after the Q2 results. So as far as I see, you haven't done that today. What we think about your distribution to shareholders?
We wouldn't exclude to do that after Q3. And we've always done that in the second half of the year. But considering also the activity level in the second half of the year, Claus, we will come back to it and we think it's better timed after Q3 this year.
Fair enough. And then just a service margin, you had a very strong first half, as you also mentioned. First half EBIT margin is 27.4%, and you're now guiding for a minimum 24% for the full year. Is there anything we should be aware of in the second half when it comes to EBIT margin?
No. And as you say it correctly, we see a very strong performance. And that's also why we have uplifted to a minimum rather than approximately. We don't at this point in time expect any negative surprises. But obviously, depending on how the contracts will be performed and if we have the opportunity of the further cost out remains to be seen as we are delivering now the second half.
But altogether, it's a positive in the service, and we're not expecting any very negative surprises.
We'll move on to the next question. So the next question comes from the line of Dan Togol from Carnegie. Please go ahead. Your line is now open.
Yes. Hello. Thank you. Ramy, you previously announced or communicated at least that in the previous EBIT margin range from 8% to 10%, the 10% was, so to say, a flawless execution for 2019. Do you now see the 9% sort of say as a flawless level?
Or does that include some sort of disruption, you can say, in the second half? That will be the first question.
Yes. And fair question, Don. 8% to 9% as we are guiding for because of the higher visibility, obviously includes the different scenarios that we had in the 8% to 10%. So it will be the same methodology. It's just that we have better visibility as we had external factors impacting the overall cost for us executing.
But it's fair to assume it's a similar methodology as we had for the 8% to 10%, definitely.
Distribution between the half years, do you now see this year actually being a bit more back end loaded than you previously thought? And what has caused that, if that's the case?
I wouldn't say it's more back end loaded than what we anticipated. It's very much in line because so far, we have been very good at executing. So it is an extreme year, and that's what we have said all along in terms of the back end loaded profile. And that is materializing clearly.
Okay. Then just one question on CapEx. You increased it by SEK 100,000,000. Where in which geography is that taking place? And is it for malls?
Or can you be a bit more specific?
So it's primarily for MOLs simply because of the strong order intake that we have had and continue to have. So it's, I would say, our global footprint. So obviously, it's a reflection of the fact that we have a global footprint. I would say that altogether, we are fairly even in where we have the overall demand. So we are but don't forget that we're also investing in capacity locally and have done so.
So but in general, it's molds and fairly evenly spread.
Thank you.
Thank you. And our next question comes from the line of Akash Gupta from JPMorgan. Please go ahead. Your line is now open. Yes.
Hi. Good morning, Henrik and morning, Marika. I have two questions, please. My first question is on outlook. I mean, I see you are ticking down top end of the range by 100 basis points on issues that were very well known to the market and you have been flagging since start of the year.
So my question is that, I mean, if you look at this rest of the year, execution issues, particularly on installations, given you would be ramping up production of V150 and other large turbines. What sort of headroom do you have in your guidance? And how realistic is this 8%? That's my question number 1.
Okay. So we are guiding for 8% to 9%, as I said earlier, and that is a reflection of different scenarios as we had for the 8% to scenarios as we had for the 8% to 10%. So nothing has changed from that perspective. And as I said earlier, the execution part internally is very satisfactory. So it's more external factors that we see now coming in and impacting us.
And it is primarily the cost for transportation and the or as a consequence of the rerouting that we have had to do.
And my follow-up is for Henrik. If I look at the outlook, industry outlook that you presented, we have decline in Americas in 2021 and same we have for Asia Pacific, while the growth in EMEA is depending on Germany, where basically current auction under subscription is not painting a bright picture for 2021 installations. So my question for you is that we have a good growth in 2020 and maybe a double digit decline in 2021. So how you are going to focus on cost base? And what are your key priorities for the, let's say, next 6 months?
For the next 6 months, I think it's fair saying here we continue the road we are on because we are investing a lot in the technology that will also be addressing some of these things in 2021. And I think we're just coming out of a quarter where we've had a record order intake. So I think there's a lot of positives in this industry that we have quite some time to address when we get into 2021. And then I think we need there to see that there is a big drop forecasted both from U. S.
And China. And I think let's see when we get a little further, 3, 6 months on how that actually is coming off both from a PTC point of view and our feed in tariff in, for instance, like a country like China, which you also know we are probably not as dependent on.
Thank you. And our next question comes from the line of Mark Freshney from Craig Suisse. Please go ahead. Your line is now open.
Hi, Mark Freshney. Two questions, please. Firstly, on consolidation within the sector. I think it's fair to say that the upheavals in the industry over the last couple of years have increased your market share at Vestas and of course the ongoing internal work, how do you see consolidation in M and A playing out over the coming months? And just secondly, trying to understand the €800,000,000 per year or for this year, capital investments.
Should we expect that going forward? Because I mean you lent very heavily on working capital for the last couple of years. Now you're having to invest in new facilities at the same point. You've got the Inventus product R and D coming through. So should we envisage that €800,000,000 per year extrapolating it forwards?
Okay. Do you want to start, Omer?
No, you go.
Okay. I'll start with the CapEx. So, Marc, the SEK 800,000,000 is really a reflection of, first, the capitalization of the Inventors projects that we have that will continue throughout this year and also investment in moulds to or to cater for the high demand that we have in the market right now. Should you expect the SEK800 1,000,000 going forward? I would say you should expect anything from SEK400 1,000,000 to SEK700 1,000,000.
We are definitely at a higher level at this point because we have the two factors that I mentioned. But under normal circumstances, we're talking about anything between €400,000,000 to €700,000,000 And obviously, the €700,000,000 is part of new product introductions.
Okay. Thanks, Marc. And I will just sort of comment on I've said I won't comment on how competitors are generally doing in our industry, commented on is our investment level. If you want to have a lead in the technology and therefore also being able to mitigate some of these things, you have to keep investing. And of course, that requires that you also both have the earnings and cash on it.
How would that affect the industry structure? I think we have seen some of the effects already. And as we always said, we are following the clear path of a strategy of organic growth. And then from time to time, we do value for us, value accretive acquisitions, which we will consider also going forward. So that's in reality how we see that.
Okay. Thank you.
Thank you. And our next question comes from the line of Alok Katri from Societe Generale.
Alok Katri from SocGen. Two questions that I had, please. Henrik, first one to you. Now that you obviously had a bit more closer ringside view of for the past 3 months, where do you think there's the biggest areas of improvement or even areas that you would like to pull back from, if that's the case? And if you could also lay your thoughts on the resource allocation, just following up from the previous question, And also in the context of some of the speculation that we've seen in the local media here in India about your strategic involvement with 1 of the local OEMs over there.
So that one's for Henrik. 2nd, Marika, just in terms of the factors that you talked about, is it fair to say that some of these factors are temporary in terms of the supply chain tightness? Or as we look at the next year when you got to deliver a lot, lot more in terms of volumes and I guess not just in the U. S, do you think we should think about these factors as a lot more entrenched and therefore as a risk even into 2020. So that would be great.
I mean if you could also shed some light on whether there's any specific geographies where you're seeing these, let's say, tightness? Thanks. Those are the 2. Okay.
Alex, I think I will start. 1st of all, I really appreciate your direct question, especially also I'm not normally known for having a long patience, but writing me into a job in already now 3 months is probably a little bit over. I started 1st August. I came out of a pretty active other CEO job. So I have stepped out of the Board 1st August.
And literally since then, I've used all my wake hours to be around and seeing as much as I could. But I simply don't have the opportunity to be able to cover the world and the regions within just working day number 15. Having said that, coming from the Board and having what we call hopefully a non event succession with Anders is that strategy is not changing. I've been part of the Board since 2013 and I think that one is clear. We are continuing on the same path.
And that's part of also, I think, the non eventful succession here. So I will let you know if I find something really extraordinary to pick up on. But so far, I'm just super, super keen to continue what is going to be the busiest year both for 2019 2020 for the history of Vestas. In terms of local rumors on companies in the industry or whatever, I said, we don't comment on those. And if we do have something to comment on, we will simply just send out our sort of under these rules and regulations, we will send out appropriate company announcements.
So we don't comment on rumors in that nature.
Okay, Alex. So to
Is that the sort of thing that
Go ahead.
Sorry? Sorry, is that the sort of thing that figure sorry, just want quickly, is that the sort of thing that fits into your definition of organic growth and small bolt ons?
I won't comment on speculations because now you're asking me to comment on exactly rumors of that nature. So we will always look at it and look at a number of cases from time to time. And if it comes to something, we will announce. And if it doesn't, we won't comment on it.
Okay. Fair
enough. To comment on your question around the supply chain tightness and our view on, I think, what you said is 2020. Obviously, we are in the midst of planning. We have a very strong order backlog, continued strong order intake. So that creates visibility and a very positive one for 2020.
I mean, I cannot give you any concerns or any positives for on that note on the supply chain. This is really what we are in the midst of planning right now. So we will get back to that when we provide the guidance basically for next year.
Fair enough. I mean, are some of those because I was hearing that you've had to sort of make deposits against booking trucking capacity in the U. S. Even 8, 10, 12 months out just because of how tight the situation over there is on the specialized trucks that you need, for instance. So just wonder, I mean, some of those factors,
would you say they
are short term specific linked to the fact that you have these second half loaded here this time around? Or is it something that you need to work on a lot more from a timing perspective?
I would say I would put it like this, Alok. The more time we have to plan with, and that's where we are right now, and the more visibility we have in terms of activity level, obviously, the better. So it's the short term changes that is difficult and costly for us. But now we're talking about 2020. Obviously, we are in the planning process for that.
Okay. And is this the U. S. That you're talking about in terms of the factors, just regionally at least, if you could pass
the question? I would say if you look at the order intake we're having, it's very global. So I would say it's a global question rather than a specific country question.
And our next question comes from the line of Di Chong from Citi. Please go ahead. Your line is now open.
Hi, Di from Citi. Thanks for taking my questions. A couple, please. First on the U. S.
Market, it seems like, well, the market forecasts in terms of like the expected installations for 2020 2021 have come up for North America and this is probably in the U. S. So just wondering if you're actually seeing signs of elevated growth in the U. S. For 2020 2021 given the expectations have heightened over probably say, 3, 4 gigawatts per annum?
And then the second question is that given that we're in August, well, mid August, can we get a sense of where you stand in terms of project execution for Q3? And what kind of revenue and EBIT margin evolution we can expect for Q3 and Q4, please?
Okay. I will take the U. S. There, and I think thanks for the question. And as I said, you can also see from the order intake in Q2, yes, it is very much focused still on the U.
S. Market. We're very pleased with that. It's a market we know and work very closely with also from a customer side. I think it's probably a bit premature to sort of start talking about 'twenty one.
There's clearly a lot of conversations, but I think that also comes down to how would 2020 sort of pan out as a year, because if you have the consideration, I'm pretty sure you as a customer would appreciate to get it installed and put in place before year end 2020. But it seems like there is a positive and that was probably why I sort of said there's still quite some time to start forecasting for '21 and 'twenty two. But generally, we're in a good position and we have a competitive product portfolio for also addressing 'twenty one and time beyond.
And to your question regarding our forecast of Q3, I mean, that's obviously nothing we can provide. What I can say is what I have said before, we have a good visibility of the second half. It's going to be extremely busy, as you can see from the revenue guidance provided. And obviously, with the higher leverage that comes from volume, that will have a positive impact on the EBIT line. And that's what I can say about the second half of the year.
Thank
you.
Thank you. And our next question comes from the line of Lars Heindorff from ACB. Please go ahead. Your line is now open.
Thank you. The first one is regarding Inventus. I know you cannot give us any insight into negotiations with customers, But maybe you could help us a little bit about telling us the progression of Inventus and how it has been perceived with the customers. I mean, you've got one order for Inventors here in the Q2. But maybe a little bit more flavor on that, how that is progressing and how that's been received with the customers?
I think it's been truly generally well received. I think they understand also what we are trying to achieve with the modular bill on Inventus. So I will say from that point, it makes it easier also to address some of the local requirements from customers. So I think in that sense, it's an easy and it's a good discussion to have. So that's probably how it's perceived in generally, Lars.
And then a follow-up on that, which is regarding the local content requirement that you also mentioned earlier. You said that maybe will lead to higher CapEx. But on the cost side, I mean, how is that going to affect your cost operating cost going forward? And hence also, well, in the wider perspective, maybe also the margins?
Yes. On a very sort of broad discussion, I mean, the more external sourcing we do to cater for volume, obviously, there's a price tag related to that. But then you also have the discussion with suppliers because they are in general very global even if they are localized. And then on top of it, you have obviously the discussions with the customers. So ultimately, how it pans out depends on the different negotiations.
But I think in a broader perspective, the more localized you get could be have a certain price tag related to it. But again, that's a negotiation with both customers and suppliers. I think the most important thing in reality is that you have volume and are as a company interesting enough to actually find those that can support you in localization.
And our next question comes from the line of Kasper Blom from ABG Sundal Please go ahead. Your line is now open.
Thanks a lot.
First of all, hi, Henrik. Looking forward to meet you. Then secondly, yet another question regarding your slightly lower margin guidance. Marieke, could you give any kind of flavor to how much of this lower margin is due to cost actually coming up and other things and due to other things such as contingencies? I suppose normally you do a plan A and a plan B.
Now you have to do a plan C and a plan D also if tariffs increase somewhere in the world. I mean, how much is this also a preparation for something that could change tomorrow and become even worse? And how much is actually sort of the real cost that you know will be higher, if you can give any kind of split on that? And then secondly, a very broad question, I suppose, but with growth in the world sort of starting to see to slow down, are you seeing any kind of delays on projects or accelerations for that matter? And to what degree does a lower interest rate also play into that?
Very broad question. Thank you.
Okay. So if we start with the overall cost, and I would say what we are now telling you is what we know for at this point on the tariffs and the changes. And obviously, the 8% to 9% is a reflection of, I mean, pure higher costs for rerouting and transportation costs. So that is more a fact. When we talk about the planned COD, that is the planning process that we are in the midst of for next year.
And as I said, the more we can actually plan for, the better. And obviously, that's part of the negotiations both with customers as well as suppliers. So there's a different opportunity to cover for those than when you are in the midst of execution, if that's understandable, Casper?
Yes. I guess it is.
Okay, Casper. I'll take the sort of more broad on sort of the environment right now. I think there's 2 observations. I think generally we don't see projects being pulled or anything. I think we are benefiting here from that, that the industry has become much more mature.
And that also means that the allocation capital is not what I will call the short or the optimistic capital anymore. So I think there is a lot of infrastructure, 20, 30 years money that goes into the industry. And those are not sort of going out of it even with a slightly more maybe gray or bleak outlook for the world economy. So I think there is a lot to be had still from the change in energy sourcing generally from being the more fossils towards our part of the energy sector in renewables. So I think that's the positive.
In terms of low interest rate, come on, that just means that a return on some of our projects still seems to be very attractive. So I can't see that right now doing anything else than just continuing to drive for our solutions around in areas. So in reality, on the short term, no, we don't see anything. Clearly, if it becomes really more bleak and dark, then let's discuss that when we see that a few quarters ahead. But I think the other one is probably that if it does, at least we will probably benefit a bit from lower raw materials if it came to that.
But we haven't seen any of that yet. Thank you.
That sounds good. We'll hope for lower raw material costs.
And then still super positive on the order intake. That's probably too much to hope for. Okay.
Yes, yes. And high prices as well.
Okay.
Thank you. And our next question comes from the line of Sean McLoughlin from HSBC. Please go ahead. Your line is now open.
Good morning. Thank you. On turbine margins, these seem to be remaining stubbornly low across the industry. Could you help us understand a little bit better the improvement in the contribution margins that particularly new products at this more stable pricing can give you to help really see how turbine margins can recover from
these low levels? That's my first
without seeing a clear path to both lower levelized cost of energy as well as something in the pocket for us. So obviously, the I would say, the pipeline of new products that we have should generate something also for Vestas. Otherwise, we wouldn't spend the money. And the more stable price environment we have, the more positive, and that's what we're seeing right now.
And that can be material already in 2020? Or is this a 2 to 3 year effect?
We're not being that specific, Sean. But I mean, you know the order backlog. You know what type of product we're taking in those orders. So I mean, we have a positive view of the 2020 year, year 2020. That's the last next question will be the last question.
And our last question comes from the line of Claus Keelan from New Credit.
Yes, hello. A question related to this strategic target that you communicated in connection with the 2018 report. I can't remember the exact wording, but I guess the point was that you were yes, elaborate a bit on this, Could you just, yes, elaborate a bit on this, yes, strategic target in, yes, as of today?
Yes. I mean, the strategic target of double digit EBIT is obviously still there. And as I have said before on a higher level, as we are not guiding for next year, we have a very positive view on 2010, 2020. We have new products and we have a very strong order intake, so obviously visibility also over 2020. Then there will always be some unknown factors apart from those that we know right now that could impact.
But altogether, we have a positive view of 2020.
Okay. Thank you.
Thank you.
Okay. With that, that was the last question. We thank you again for both the attention and also your questions on this conference call. And again, look forward to speaking and see you out there. Thank
you. Thank you.