Good morning, and welcome to this Q3 of from Vestas. And then, of course, it's nice to present Q3. And also especially considering a week after that we spoke last about the offshore last week. So if we jump straight to it, key highlights of this quarter is that it's the higher ever quarterly deliveries we have had despite what is going on in the world around COVID and the whole challenges we see there. We will go through that in short moments.
When we look at the revenue, revenue was up 31% compared to Q3 2019. We ended at a revenue of €4,800,000,000 and an EBIT margin before special items of 8.6%. We had another solid performance in Service, so organic growth in the quarter of 14% compared to Q3 2019 and ended with an EBIT margin in the quarter of 28.6%. Especially also when we look at the sustainability, we continue contributing to the Paris agreement target. So with what we now have installed fleet at the end of Q3, we displaces 165,000,000 tonnes of CO2 on an annual basis.
This is part of also the key indicators we will share with you going forward because we think it's important as part of the sustainability journey we're on. Last but not least, you've seen that. We discussed that. But I'm sure also today, we will have more questions and comments on the Vestas and MHI announcing the strengthening partnership as of last week and also how we plan to embark into a stronger position in the offshore wind market. But let me first jump to the current COVID crisis, so to say.
Let me start by absolutely reaching out and thanking our customers, our nearly 26,000 employees and colleagues around the world and our partners through suppliers and others that have contributed to the full both supply chain and value chain in the Q3 of this year. I think it is absolutely outstanding how we have all seen that people have come together and cleared the deliveries we have had. It is with the clear priority to health and safety, 1st. But secondly is, in terms of the business, it is with the continued focus on the business continuity of total investors' operations globally. And I think here, we can say in this quarter, it is really well done to everyone here.
We also see now that we are in some will say we are in the acceleration of season 1 or phase 1 in a number of continents. And for some of us, I think we in countries using the expression that we are in the 2nd season of COVID-nineteen with a generally still the same challenges about how we can move across countries and markets freely under the current quarantines and close down of borders. When we look at it, we can, as of today, say that, yes, we are having our manufacturing footprint and we're having the supply chain up running. And of course, we constantly monitor that. And generally speaking, in the quarter, we have had days where we have had challenges.
And then we have some of the transport logistic challenges we have seen. However, I think most importantly here is we have managed to deliver 12.2 gigawatts so far in 2020. That is up more than 50%. And it is a testament to everyone that we by end of the first 9 in this year, have done nearly 14 gigawatt of manufacturing and shipped assets. So takeout of this slide is really thank you to everyone involved, and let's keep that both attitude and focus for the remainder of the year and especially also for the remainder of the challenges from the COVID-nineteen crisis.
We then go to the Q3 order intake. We ended the quarterly order intake of 4.2 gigawatts, which had an ASP of $0.73 per megawatt. I think here, when we look at it, order was taken across 22 countries, really positive over that. We, in the 3rd quarter, have managed to do that across that many locations. And here, where we have had, it's slightly lower, 11% lower than Q3 in 2019.
But please be aware, Q3 2019 was heavily influenced by the U. S. Order intake in that quarter. Having said that, we have seen in this quarter, U. S, Brazil and the U.
K. Were the main contributors to the order intake in Q3, and we'll come back to that a little later with the breakdown. When we look at the ASP, remained underlying stable. When we look at Q3 here and correct for what has happened on the FX, ASP would have been 0.75%. And again here, always deviating from what location and turbine type we are using.
But in this quarter, again, underlying stable and positive for us when we look across the full value chain of Vestas. When we look at the order backlog, we are now at €34,000,000,000 We had a combined increase year on year of €1,100,000,000 despite a negative FX impact of approximately €700,000,000 We saw the wind turbines coming slightly lower, SEK 14,600,000,000, especially because we have had the high deliveries in the quarter, balanced off against service where we had an increase of SEK 3,000,000,000 year on year ending at SEK 19,300,000,000. So again, a very robust and healthy backlog to work with. When we go a bit more into Power Solutions, we have now installed 123 gigawatt across the global operations. We are in 82 countries.
And as I said, 100 and 65,000,000 tons of displaced CO2 emissions every year from what we have installed so far. But I think the Q3 2020 highlights are especially here. We talk a lot about short term, but we also should focus on what are the underlying megatrends. And one of the underlying megatrends, I think, has been highly illustrated in this quarter. We have seen the EU green deal get more and more traction, getting closer and closer to country action point as well.
We have seen South Korea, Japan pledging carbon neutrality by 2,050 and not least China by 2,060. None of these sort of statements and none of these sort of ambitions will add anything else than positive to the underlying for renewable energy. When we then come to a lift here and now on the Q3, we have seen the pipeline builds for U. S. 'twenty one deliveries with close to now 1.5 gigawatt of order intake.
We've also seen now the 1st PDC qualifications that looks towards 2023 2024 projects. And I think here, as we have discussed in the previous quarters, the visibility for customers and the visibility for us in terms of how we will look at capacity and opportunities in after year end 2020 has become much better for both of us. And therefore, we are seeing those discussions being ongoing also for future years. When we then see in Europe, we are in Asia Pacific, we are very positive over the, 1st of all, increasing activity levels. And here we can say U.
K, Poland, Vietnam and China are some of the main contributors to the green arrows seen below in order intake. And then as you can see, we generally have a very, very high activity across the delivery type in all regions. That leads me to think more about the Service business. First of all, we have now reached 108 gigawatt of onshore turbines. We have the 19 years of average duration on new contract signed, which is again very positive for us, and we deliver that across 75 countries.
Big highlights from the quarter is that we took the Viking order in the Sietland Islands of 4 43 Megawatt at a 30 year service agreement. We have increased again the long term commitments in China with plus 15 year service agreement. And then we have secured 3 quarters of a gigawatt of multi brand service contracts across different geographies and platforms. I would just highlight below in the service fleet that when you look at the regions compared to Q3 2019, We, of course, really appreciate that when we look at the Americas, we are up 29% in gigawatt on the service from what was 35 to now 45 gigawatt a year later, very positive. When we then look at offshore, and I think it's fair saying the effects of the offshore quarter is probably a little bit by our announcement last week.
It shouldn't reflect from that or take the action or attention away from that. We have 5.6 gigawatt installed, more than 12 30 turbines. When we look at our Q3 2020 highlights, we are completing and progressing in the supply chain in Taiwan, which is positive for, again, working closely with customers and our sort of local requirements there. When we look at the floating, we have again, Windfloat Atlantic is fully operational outside Portugal's coast and also connected to the Portuguese grid. And then we have the installation and commissioning of the 731 Megawatt Bercelet project, which is, of course, ongoing and it's with the V164 turbines of ours.
Other projects in progress, you can see below. And that highlights from the businesses. So I'll hand over to Marika on the financials.
Thank you, Henrik. If we have a look at the income statement, I think that is a fair reflection of what Henrik already described to you. We see a very strong activity level in both the Power Solution as well as the Service business. And you see the revenue is up 31% here in the quarter. Gross margin is down 4.1 percentage points, and that is again previously.
And that is obviously further amplified by the COVID-nineteen. Also remember that Q3 of last year, we had a reversal of the inventory write down in Romania that positively impacted the gross margin. EBIT, as a consequence, is decreased, and that is, again, driven by the lower gross profit that you see here. SG and A cost continues to be well under control, and we're certainly leveraging the SG and A, and that is obviously a focus area for us. Depreciation and amortization, excluding the impairment, increased SEK 27,000,000 year over year, and that is primarily due to the introduction of new products.
And we are on a percentage point down compared to Q3 of last year, down to 5.4% here in Q3. Service Business continues to deliver a strong revenue increase. So we are up 14% here in the quarter. And as I said earlier, obviously, is a reflection of the higher activity level that we see. We have a margin of 28.6% in the quarter, so fairly similar to last quarter and as well as Q3 of last year.
MHI Vestas revenue in the joint venture is CHF 580,000,000 and that is up 27% from Q3 of last year and again planned for as the activity level is higher. We have a net profit that is positive SEK 30,000,000 here in the quarter. The change to net working capital is, I would say, positively impacted by the decreased level of inventory. And I think everyone recall that we are utilizing balance sheet to accommodate the high demand that we see and the high activity level that we see in the market right now. And therefore, a positive development of the net working capital here in the quarter, obviously having a positive impact also on the cash flow, as we will speak about later.
Cash flow is a good impact from the operating activities. So you see we are delivering SEK 611,000,000 an improvement with SEK 1.61,000,000 compared to last year. And you also see a positive change in the net working capital. Altogether, we managed to deliver a free cash flow of €546,000,000 and the net interest bearing position is 1.6 1,000,000,000. So obviously, a constant focus on the cash discipline within the company.
Total investment continues at a very stable level compared to last year. And also remember that we have further optimized the platform and the focus, and that focus remains. So a very good development and expected development on the CapEx here in Q3. Warranty provision. Here, you see that we are providing more than what we consume.
We have consumed extraordinary repair and upgrade level that we spoke about in the last quarter. Capital structure. Net debt to EBITDA is well below threshold. We are negative 1.1,000,000,000 and the liquidity position remains very strong. And we have close to SEK 2,000,000,000 cash at hand.
With that, I leave over to you.
Okay. Thanks, Marika. And with that, on the outlook 2020, very much remains. So on revenue, still work with an outlook of €14,000,000,000 to €15,000,000,000 for the full year. Service is now expected to grow minimum 7%, which is a slight adjustment from last quarter.
And when we look at the EBIT margin before special items, we are saying 5% to 7% for the full year, where we now say service margin is expected to be minimum 25% from, again, approximately in the last quarter. And on the total investment side, with what we are seeing now, we say it will be below €700,000,000 for the full year. I will also point everyone to the bullet sub bullet number 2, which is that due to those circumstances we're in right now with the COVID-nineteen, we will just say and highlight on the outlook that it comes with a normal or higher uncertainty than under normal circumstances for this time of the year. So with that, thank you so much. And I will just hand over to Q and A.
Our first question comes from Christian Johansen from Bernstein Bank. Please go ahead with your question.
Yes, thank you. So my first question is regarding operating leverage. So obviously, you see very substantial growth on deliveries, but looking at the margin in Power Solutions adjusting obviously from the reversal in Romania last year, it is a very minor increase. So can you go speak a bit about how the incremental margin works when you are delivering this many projects? And along that note, when we look at your order intake and next year, it seems obvious that you will have geographical shifts with lower volumes in the U.
S. And more volumes elsewhere. So how will that impact margins?
Okay. So if I start with your first question, Christian. On the margin side, I think we have highlighted several times that we are obviously growing very fast, And that obviously takes some time before we get the leverage from the fast growth. And that is, for obvious reasons, further amplified due to the COVID situation. It doesn't make it less costly, I would say, to grow as fast as we're doing.
But there are certain parameters that sort of make up for the difference. I think you mentioned one of them, and that is Romania compared to Q3 of last year. We also have a higher provision for warranty. That also makes up I think it's around €53,000,000 here in the quarter. And obviously, even if we're performing extremely well on the service side, simply the growth in the turbine segment has an impact on the overall profitability.
And then as I said, the logistical part is a further challenge for us. And we have I think it's a direct cost of around EUR 15,000,000 related to COVID. So that's why you don't see the further up tick. And then on the order intake side and the composition for next year, obviously, we're not sort of guiding for next year. But I think it's fair to say that further optimizing, getting further efficiency into our operation is the main focus right now as we're trailing at a very high level.
So hopefully, the situation is at least slightly different from a COVID situation than what we see this year.
Okay. And just to follow-up what you said in the beginning that it takes time to get this leverage. If we then think about a revenue profile going forward, which will be more flattish, should that also then allow to get the time to optimize the markets to a high degree? Is that what you're saying?
I think I mean, everything else being equal, the more predictable you are, the better you can perform on the efficiency side. I think in this environment, growing fast, having a COVID-nineteen situation, having shortage in transportation, having increases in cost for transportation, obviously, makes it more difficult to get the efficiencies in. But that is a clear focus.
Okay. That's clear and understood. And then my other question was on the share buyback or the lack of unannounced shareback. Just if you can elaborate on the decision not to announce share buyback.
I think we like banks and we like investment banks, but we banks, but we are right now trying to complete and conclude on a transaction where we issue shares. So let's work with the capital structure and therefore, we haven't announced that And therefore, you can probably also look into the year. There are no plans of share buybacks this year.
Our next question comes from Klaus Almer from Nordea. Please go ahead.
Thank you. Yes, also a few questions from my side. So my question goes to the guidance or the implicit guidance for Q4. And I appreciate or noticed the high uncertainty given the COVID-nineteen. But if you look at the high end of the guidance range, both from revenue and margin side, you are implicitly guiding by 14.6 percent EBIT margin in Q4.
That will be a significant improvement from Q3. And if you just look at the mid size midrange of your guidance, which is actually based on lower revenue than we saw in Q3, you're still going to see a significantly better margin than in Q3. Can you put some color to what is going to happen with the margin in Q4?
Yes. That would be
the first question.
I think you know, Claus, that Q4 is always a challenge for us because we normally have a high activity level. And also, COVID, at this point in time, doesn't it easier. And we also have the weather conditions. But I mean, the methodology that we are using haven't changed. And you're absolutely right in your anticipation.
But also remember that we see in the quarter, we see a more positive composition of projects in terms of profitability and location, so less changes needed. And obviously, that will enable a better performance in the quarter. But having said that, obviously, we don't see that Q4 will be easier in any shape or form. But I think the big question mark right now is obviously how COVID affects the market that we are present in. But I mean, the big difference is really the composition of projects, but also some initiative cost initiatives that we have, especially on the logistical side, that we expect to have a positive impact in the quarter.
So those 2 would enable us.
So everything equal, so the mix you are going to deliver in Q4, that's a more normal mix. So what we see in the backlog is also represented to what we see in Q4. There's no favorable projects to be shipped in Q4. Is that how I should understand your reply?
I mean, you know the focus that we have had in further strengthening the stability in the ASP and also, as a consequence, delivering a better performance on our projects. And that focus is there. It's not that we see any extraordinary kicking in, in the quarter.
Okay. That sounds good. Then my second question goes to the inventories, which in Q3 took a drop despite at least your backlog and your order intake. Can you give some color on how your inventories are developing and how you're planning for 2021?
Yes. I mean, the planning horizon of the inventory is obviously dependent on how the order intake perform as from now. The reduction you see in the inventory here in the quarter is according to plans. And that is also what we said at the beginning of the year that we will build up inventory for a high activity level at the end of the year. We're not sort of guiding specifically, as you know, Claus, for the inventory.
But this is in line with our planning process. And then it remains to be seen how the order intake take place here now in the latter part of this year.
Okay. Thanks a lot.
Thank you. Our next question comes from Svein Ahmed Sabramay from UBS. Please go ahead.
Yes, hi. Good morning and thank you for taking my question. I have two questions. Maybe one is on the onshore market development. If you could give a bit of light on where do you see sort of offsetting markets coming up to offset the let's say the reset in the U.
S. Market now expected over the next couple of years? And sort of as I add on to that question, in the recent few quarters, we've seen an increased traction in China, there traditionally, of course, it's been to be close for the non Chinese OEMs. Do you see a shift in attitude in customers there? Or is it just a function of the higher volumes in that market for this year?
And my second is related to the offshore business. And here you had last week you had mentioned that there is an aim to reach market leadership position by 2025. But given that, let's say, Vestas right now is maybe a bit lacking in terms of the latest platform. And for 2025 market share, orders need to start coming in this year or the next couple of years given the long lead time. So how do you see that progressing?
And do you think that it is achievable based on sort of where you are in the new product development phase? Thank you.
Thank you, Supriya, and I will try to address those. I mean, in the onshore market, I think here, what gives us great confidence is that when we look down over the order intake in this quarter and also the previous quarters, it comes from broad sense many markets. And as I said, when we walk through also the overview here, I don't necessarily think that some of the packages and some of the ambitions that comes out will potentially affect Q4, Q1 order intake in the coming couple of quarters. But the conversations you are seeing both across all countries in Europe, you see them across the countries in Asia, You see Vietnam, which has certainly become a large and important market for us. You see India making plans.
And there, you can always see, yes, we would be sometimes disappointed with certain markets, then there will be a delay. But generally, also speaking, when then markets and countries get the framework right, then we generally see a release in it. And there is in some markets, we all know, both in Europe and in Asia Pacific, there is generally a vacuum that needs to be caught up in the declared intention of either retiring nuclear coal. So we still believe Germany will move at some point in time. We still see an India that will move sometime, and therefore, we are continuing our footprint to address those things.
In China, we welcome the development. We will not sort of talk out of terms in either 3 or 5 year programs. We are making the right relationships. And then we are pleased to see that our region in China are making good progress in those relationships, and that has been what you also seen confirmed in the quarter. We also fully appreciate that a lot of those markets are still being discussed from a political part and also what needs to be addressed going forward.
And some clearly was part of the feed in tariff ending in 2020. But then I will also say some of the volumes and some of the plans in the programs in China, of course, will be attractive both for Chinese OEMs and also for global international OEMs. Your last point of offshore, I'll maybe sort of keep my answer a little bit convoluted and in so much as saying we are waiting for a closure of the transaction we have announced. We are doing it because, as we said, we aspire to have the clear leadership. And I know your question is probably framed more about when can we expect to hear more about our product road map in offshore.
And we fully appreciate with the current product we have out there, we will not have that leadership. So therefore, I will wait to announce anything on the product road map until we have something to tell more about or also tell you about when we close the
MSI transaction. Our next question comes from Akash Drifter from JPMorgan. Please go ahead with your question.
Thank you. Good morning. Thanks for your time. And my first question is on blade issue. Since you reported Q2 results, we have seen 6 publicly reported cases of blade failures, which covering V110, V136 and V150 from relatively new turbines.
I wanted to ask you if you have any visibility
for these issues?
Akas, thank you for that question. And I will say you know how both diligent and also robust we have our process and procedure around our warranty provision. So I don't think we have any reasons to believe here that we question what we have done in neither this quarter or previous quarters. We also know when we announced the extraordinary provision for the blade that, that was looking ahead, not looking to the past. So we are right now addressing both those repair and upgrades accordingly to plan.
We are doing that around the world. And therefore, we probably should and have seen some of those come to it as either examples of being discussed or related to that must be related to that extraordinary. And we will just say, guys, as a wind turbine is out there, it will always be exposed to lightning. And therefore, we address that under the warranty provision we have made, and we are going around that right now. It is not a surprise to us that we see some of those stories popping up more than we have seen in the previous quarter.
And we also said that in last quarter, those are the things we now go through in the coming quarters when we repair and upgrade.
Thank you. And my second question is on onshore pricing. If I look at 9 months orders for you, they are tracking down 13%. And if you look at 4 large for Western OEMs, which are listed and we can track publicly, they are tracking down 17% for the 1st 3 months or for the 1st 3 quarters of this year. My question for you is that can you talk us through what kind of visibility do you have in Q4 and maybe early next year?
And is there any risk of pricing when onshore demand continues to roll over given impact from Green Deal or some of the U. S. Plants or maybe China 2,060 plan won't be in the near term?
I appreciate your question in terms of visibility on the deliveries. We as you will say, you appreciate we are keeping our guidance and we do that. In the order side, we are actually quite positive. I think we have had a very good quarter. We are positive to see when we sit here in the end of Q3 that the order intake we have had so far this year is actually quite remarkable considering how much there has been of Stub and Go, both from our customers and the countries we are dealing with.
So we are quite pleased with that. When we then look at an ASP, we are pleased with that. We call it stable also when you adjust for the FX. And then it is super important for us again to highlight when we look at the ASP, the ASP is not having an equal sign over to profitability on projects because there will be local projects, there will be turbine types that actually yields us the required profitability. Otherwise, we wouldn't have taken the orders.
So we are confident in that. And when we also look ahead, we have a good backlog and we are executing on that. And at the same time, we are taking new orders, as you would appreciate here, with the order intake in the quarter. Thank
you. Thank you. Our next question comes from Dan Sogou from Carnegie. Please go ahead with your question.
Yes, thank you. Firstly, a question on deliveries, almost 6 gigawatts here in the Q3, quite impressive. How should we look, so to say, at the run rate going forward? I guess you cannot just take the 6 and multiply by 4. What does it take, so to say, in your setup to reach this?
That's one thing. And the other thing is, has there been additional costs involved in pushing through such a high delivery here in Q3? That's the first question.
Then I will always say, I think one day when borders are open, you should come and you should come with us to see that. But as I think doing math, like you just say, multiply by 4, is a little bit not thinking of that there are 26 1,000 colleagues of ours that deserves a big thank you today because you have now seen that we are delivering 59% more than we did 9 months ago when we take year to date. And that is on an incredible large activity level already. So I think it's a fantastic development. When you then look around how the planning of that, there are all sorts of planning going on because when we originally entered the year, we knew we had to finish most of it before end of 2020.
And therefore, this is really, really well done. And of course, a lot of people have made sacrifices to deliver that in Q3. So you cannot do that, as you just said, just to put a linear regression on a quarter like this. But on the other hand, I will just sort of say here, it's quite impressive in the environment we are in. It gives us a lot of confidence.
It gives us also a recognition of that the attitude to the execution the organization have delivered in Q3, I think, is close to be outstanding because we have managed to do this despite all the other things that goes around us. So in that sense, we are getting more confident on our own ability quarters ahead.
Understood. Then a question on ASP. I understand that there's a negative FX impact here. But also could you maybe give some comments? Are there any negatives from scope?
I mean, you're selling less in the U. S. And from China as well, where you're also selling a bit more. That should also, in my view, have a negative bearing on the ASP. So any color on that, please?
Neither from Marika and I or the rest of X7, we have no change of tone of voice. We think the ASP has remained stable, and we are happy and pleased with it. And that's a good indication of that we also, in this quarter, have taken orders where we fulfill our own internal profitability requirements.
Okay. Thank you.
Thank you. Our next question comes from Gerald DuBrun from Deutsche Bank. Please go ahead. Your question.
Thanks very much and good morning everyone. My first question relates to the gross margin development. I mean, I do appreciate that this quarter is a little bit exceptional in terms of the major deliveries you had to do in particular in the U. S. And that there are some ongoing logistical challenges and so on amplified by COVID.
But the gross margin is clearly looking pretty low for a business like yours with flat pricing right now. So how shall we think about going forward, how shall we think about normalized gross margin for your business? What do you think actually is actually a normalized gross margin for the group? I suspect it should be between 15% 20%, but look, I wanted to get your views on that. The second question I have is on the service profitability.
For the coming years, you continue to guide for margins of around 24% in service, right? But this year's performance was much, much stronger. So what makes you think that beyond conservatism, what makes you think that margins could decline by as much as 400 bps going forward?
Okay. Gael, if I start with your question on the gross profit. I think it's very hard to say what is a normalized gross profit. We've been growing the company quite significantly for the last couple of years, and I think we also have been clear on that to be sort of further increase the gross profit requires all the suppliers, all the logistics, everything to work pretty flawlessly. And I think in an environment we're in right now, it's very hard to identify what is flawless because we do a lot of changes continuously.
I would say if you look at the activity level that we are providing where and also what we're delivering to the customers, we do that successfully. But it requires a lot and a very relentless focus for us. So I think it's fair to say that a normalized gross profit is nothing that we put forward at this point in time. But obviously, that is a key focus to further improve on the EBIT line as well. So I think that is what I can comment at this point in time.
On the service profitability, yes, it is a very high profitability that we are providing. We still think that the 24% you are alluding to is relevant as a measurement, but we will also come out with a new guidance for next year, as you're fully aware of, in February of next year. But the main reason for the profitability to be at this level is because of successful cost out that actually have been higher than what we anticipated. So people have been doing a very good job on that. And it's also relating to the high quality we have on the products as such.
Okay. Thank you very much. Thank you. Our next question comes from Casper Fleu from ABG. Please go ahead with your question.
Thanks a lot. Actually, just a follow-up on the previous question regarding service profitability. As I recall it last year, there was a bonus payment to the employees in the service business that affected the service margin quite a lot in Q4. Would it be fair to assume something similar this year given that they've done really, really well so far this year? And secondly, on the warranty provisions, it can matter quite a lot when trying to model 2021 profitability, what warranty provision levels to assume there.
Is it fair to assume that you go back to the historical level of 2% to 3%?
Okay. So if we start, Casper, with the service and the provision of bonus, I mean, we follow the principle that we have in place. We provide when we see a need for it. And that is what I will comment on that side. The warranty provision, I understand your question because, obviously, the 3% that we are having right now makes a big difference compared to last year.
But the sort of the overall comment I will give is that we've been anything in between 1 point 5% to 3% on the warranty side. And we, at this point in time, have quite a lot of new products. And obviously, that is also related to the warranty provision that we make at this point.
But you can't help us in any way whether it's 3% also a fair level to or 3.1% a fair level to assume next year? Or is it to be seen as a little bit of an elevated extraordinary level at the moment?
No, I cannot help you on that. We are having a lot of new products. That is a reflection on the warranty, as I said. We will also have a number of new products next year.
Our next question comes from Marc Freshley from Credit Suisse. Please go ahead. Your question.
Hello. Thanks for taking my questions. Firstly, on the offshore business, just the accounting, presumably it will remain as a joint venture until you complete the transaction. And secondly, on that business, presumably, when it was spun out of Vestas and put into the JV, there was a separate administrative function within there and the business slowly separated over time. I would guess that there'd be a big cost out plan as you collapse the various functions back into Vestas Group.
Can you talk about when we might see those exceptional restructuring costs, etcetera? And thirdly, I mean, is it fair to say that a consideration for the MHI Vestas or buying out the JV is basically the amount of capital that would need to be put in to develop any future platform that may or may not be announced? Thank you.
Okay, Mark. If I start with your first comment, I think you answered the question yourself. Obviously, the merger have not taken place at this point in time. We're waiting for the anti trust. And so far, the accounting proceeds as we are doing it right now and what you see here in the quarter for the remainder of the year or until we close the transaction.
And in the second quarter around your sort of expression of collapsing structures and other stuff, I think here, we have spoken with, of course, our colleagues in IMO. The work is ongoing right now, not necessarily of making any statements upfront, but actually finding out how should the setup be. And if you visit us in Oulu, both from investors and an MREL perspective, we have in Oulu, as an example, 2 offices, 300 meters in between. So what we are looking at right now, how do we actually work with each other as potentially that as an entity rather than 2 separate entities going forward. So Mark, we will say something there when we have agreed with our new colleagues to the family, so to say, of mWow.
And we expect and we work diligently through that as part of this planning process and fully awaiting the final go and approval from the authorities. I think on the capital, as we said or CapEx, as we said last week, we will follow the normal pattern as we also did and we have done for Emmau when we established Emmau. And there, we will come out and give you more guidance when we both probably close, but also have something new to announce in terms of the product road map going forward.
Okay. Thank you very much.
Thank you. Our next question comes from Martin Wilkin from Citi. Please go ahead.
Hey, good morning.
Thank you. It's Martin from Citi. Just a couple of questions. The first one is on the COVID costs. You mentioned about some of the direct costs you've seen in Q3.
Obviously, since you reinstated guidance back in August, we do have more lockdowns in Europe.
So just to get some sort
of sense, will that impact your ability to deliver in Q4? Or are the measures put in place by government still enabling you to deliver as planned? Just to get some sort of sense as to whether those costs or difficulties in deliveries get more challenging in Q4? And the second question was then just on some of the initial 60% U. S.
PTC model you've seen in the quarter. Normally, we've seen qualification orders coming in Q4 rather than Q3. And just to get some sort of sense is, are you seeing the interest in 60% PTC for 2023, 2024? And is that above your expectations or just some comments around what you're seeing on that side of things? Thank you.
Thank you, Martin. If I comment on the first one, on the COVID costs, what we see as a direct cost relating to COVID here in the quarter is around EUR 50,000,000. I think you also heard us say before that we've been pretty strict in not using COVID as an excuse not to deliver. And that's why you see that we're actually managing the overall activity level in a very good way. I think it's also fair to say that if we would know exactly how COVID pan out here in the last quarter of the year, we would probably get some sort of a price for that.
So it's very hard for us to say. We're not planning for a smooth ride. We're planning to have some obstacles. I think it's also fair to say that in Q4. But what we do when we have a back I mean, the profile of the business is back end loaded.
And obviously, you're trying to do as much as you can as early as possible. And that's what we are in the midst of doing also in this quarter. But have you seen that it will be in any shape or form easy. I don't think so. But we don't want to use get an excuse for the COVID for people not to deliver either.
So I would say we're doing what we have done throughout this year successfully from an activity point of view.
On the PTC orders, we are working diligently through that, Martin, if there is a it's a 30th September cutoff of Q3. So if it comes in Q3 and Q4, it generally just probably is a good signal of the visibility for both customers, partners and us are increasing both for 2021 and beyond. So therefore, I think that is the positive signal of what we have seen in Q4 or Q3. And then we work, as you would expect, diligently to push on with further in Q4.
Okay. That's great. Thank you very much.
Thank you.
Thank you. Our next question comes from Sean Leung from HSBC. Please go ahead with your question. Good morning. Thank you for taking my question.
Firstly, just on the unannounced orders. I mean, this came in as less than half of the average that we've seen over the last four quarters. I'm wondering, is this a more normalized level? Or have we actually seen a very strong demand for small order volumes in over the last four quarters? Any color here would be helpful.
Thank you.
Sean, I would just sort of say, we don't and we won't have principle of unannounced orders. So if it comes in 1 quarter, we generally if it is unannounced, it's unannounced. And as you will see here, we're actually quite pleased with the activity level. We worked diligently with it. But you can't put a sort of static one and so on.
And what happens and what doesn't happen, I think right now what we are seeing is that the world, both utilities, large infrastructure customers with mid sized developers are, in many cases, also still trying to accelerate some of the opportunities what we have and see around in the countries. So you can't put that as an equal or try to do that as a fixed number per quarter.
Understood. And just on the previous point that Marika made about the COVID costs. And I mean, you're kind of saying there's uncertainty around COVID continuing for the rest of the year. You're still on a very wide guidance range. And on
the back of this very strong Q3,
I mean, can you give more color as to how comfortable you feel about upper and lower ranges of that guidance range?
I think I commented on that earlier. I mean, we have the same methodology as we always have for any given quarter. And we work with different scenarios. What will make it very positive, as I said, if everything works according to plan, is actually the mix of the projects that we see for the 4th quarter and also some of the cost initiatives that we have that will kick in Q4. That would be make a very positive impact for us.
But obviously, everything remains to be seen as we are in the midst of the quarter at this point in time.
And thus far in Q4, would you say that the cost burden from COVID has remained at a similar level? Have you seen an improvement? Or have you seen worsening?
I think it's I mean, obviously, it's very hard to anticipate because we are in the midst of the quarter. We have been very picky in terms of what we choose to have as a COVID cost, and we have been pretty similar in any given quarter this year. And I say 15% now here for Q3. And that is the indication. We've been at a similar level also for the previous quarters.
Thank you.
Thank you.
Thank you. Our next question comes from Lars Feindorff from SEB. Please go ahead with your question.
Yes, good morning. Thank you for taking my question. The first is regarding the delivery ASP. I see this quarter you mentioned that FX had a negative impact. Just browsing through some of the previous presentations, I don't recall, maybe it's my memory that slips me, but I don't recall you talking too much about FX impact.
Has this been particularly pronounced this quarter? Delivery ASP?
I think we follow normal practice here. So if there is a material impact or there is an impact to it, both from an order backlog and also from an ASP side, Lars, we will make you aware of that. So there's nothing particularly outside that. And as I said here, as commenting on ASP, we are actually quite pleased with the order intake and also the related ASP because, of course, we know the project profitability on it.
Okay. Secondly, regarding the warranty the special warranty provision. You earlier indicated that you are likely to use the €175,000,000 away period of 3 to 4 quarters. And just wanted to get an update on that if that's still the case or if anything has changed since we last spoke about it in Q2?
No. Lars, nothing have changed. You will see us starting to consume that in the coming quarters.
Okay. And then lastly, a follow-up on actually many of the previous questions, which is again regarding the margins and the outlook that you have for the Q4. If you follow the guidance, lower revenue compared to Q3 in Q4, at least what you guide for, and yet higher margins. And you indicated previously that you've seen fairly similar impact from COVID so far this quarter compared to the 3rd quarter. So we just come across being a little bit weird, to be honest.
And does this actually the margin that you now are guiding for, is that something that we can take into next year? And how does that stack up with the ambition of reaching the 10% margin overall by 2022?
I think you are probably maybe, I would say, call it the guidance where I think maybe I will just distance a little bit, Lars, with all aspects. I think we are executing on. We started the Q1 with some projects that were very low. We had the transparency on that profitability on projects throughout the year. And it is a project business, so you can't put a rule on saying if you then have an overweight of what we say that this is the Q4 that will make our guidance, then everyone can see we will be more profitable in Q4 with the projects we're executing on.
Then that is completion of that year, and it's the Q4. And then we have a new project pipeline for the coming year. Generally, we work towards our midterm EBIT guidance of 10%, but we will give you that guidance when we are planning to reach that guidance. So if we can just break a couple of points apart and life isn't that you can say, then we have a phasing in 2020 of the 4 quarters and then you pick the quarter that fits that link. It's not that easy.
Our next question comes from Katy Phelps from Morgan Stanley. Please go ahead with your question.
Hi, good morning. I just wanted to follow-up on a couple of earlier questions around the Service margin, kind of looking at longer term development rather than just what we saw in Q3 or what we see in Q4. When we think about the improvement over the last few years from around 20% in 2017 to kind of mid- to high-20s that you see now, I just want to I wonder if you could clarify, have you seen any benefit during that period from the targeted acquisitions that Vestas has completed like Utopus Insights? Or has that development purely reflected the kind of organic improvements around growth and contract tenure? And if it is purely the latter, when would you expect to see some benefit from those acquisitions?
I think what Marika rightly said early on, we have had a service business that is developing positively over it. It comes down because the both of the execution of what is in the service business and how they execute on the service contracts, which we clearly are very pleased with. And therefore, a lot of that comes from internal efficiencies. As we have highlighted early on, we are also on a journey in service. We have made some acquisitions there fully included in what we have here.
But as we also said early on, the next step we are doing in service is we are also now investing in both the tools and also what needs to be the tools for both the service technicians on-site that can drive further efficiencies out from the technology, but at the same time also for running the service business as a unit. That one we won't compromise. We're investing in this year. We're investing in next year in some of those. And then we will see some of our business units within the service organization going live during 2021.
So in general here, investing in a very, very good business with a very solid value proposition to our customers.
Great. That was very clear. Thanks.
Thank you. Our next question comes from Ben Heelan from Bank of America. Please go ahead with your question.
Yes, good morning everybody and thank you for taking my question. I wanted to ask on the loss production factor increase that you've seen. Is that pretty much all related to the higher repair and upgrade from the blade issues that were mentioned earlier? And then secondly, could you share with us what proportion of the backlog is the Inventor's platform now? Thank you.
Well, Ben, if I comment on the LPF, I think you answered the question yourself. It is you will see the LPF LPS or the LPF related to the overall blade issue that we have at this point in time. It will be a reflection of that.
Yes. And I think on Ben, on this one, on the inventors and the volume taking into that, it goes as we planned. You can see we are taking some of the orders. You can see the announcement coming there. We don't hold externally what we have as an overall order backlog from a new turbine or individual models, and we will also refrain from that.
So but it's going to plan. And as you probably some of you know, Ben, probably is the last Ben probably is the last question. I don't know if there's a follow-up, Ben, in some of the things we have said here.
No, that's very clear. Thank you.
Okay. With that, we conclude this Q3 presentation and also Q and A. We look forward to speak with many of you in the coming days. And also, I suppose we will see and see each other on virtual media in what has now become the new normal. So with that, thank you so much for Q3.
Thank you.