Okay, so good morning everyone and warm welcome to the third quarter 2014 earnings announcement. So let's get started. The usual slide on disclaimer and then let me jump straight into the key highlights of the quarter. And I must say I'm very pleased with the results in Q3, a strong operational performance of everyone working in Vestas and we see good improvements in most of the key parameters and of course especially in improved earnings. The guidance is increased for the full year of 2014 and I will come back to that in the later part of the presentation. Other highlight is EBIT before special items at 9% in the quarter and earnings more than doubled compared to the same quarter last year. Also free cash flow almost doubling to EUR 105 million, very much influenced by the improved earnings.
The ROIC, so the return on invested capital, increased and has now increased fairly rapidly the last three, four quarters and in the quarter reached 26%. A decline in the order backlog due to a relatively speaking lower order intake in Q3 but a positive development on orders looking at the first nine months compared to the same period last year. So I will talk a bit about the markets and orders, Marika will come up and talk about the financials and then I will come back with the outlook and the summary. So if I start to talk very broadly then about the regulatory trends that we see in the market, I'll start with Americas where the PTC is of course high on our agenda. There is no decision yet but we expect that it will be revisited at the earliest in December of this year.
So of course something that we monitor closely. In Latin America we see good activity with supportive frameworks either being implemented or being put in place in many countries broad scale in Latin America for example Colombia, Panama, Honduras, etc. In Europe and Africa the EU's decision to increase renewable share to 27% in 2030 for certainly gives stability in a long-term view of that market and that of course is on top of the 20% target in 2020. We also see new EU guidelines moving to market-based support systems and Germany is one such example that will move the tenders in 2017 will move in line with these new EU guidelines. In Asia Pacific there are discussions around feed-in tariff reduction around 3%-8%. There is no decision yet. These are more preliminary discussions and at the same time then we see increases in build-out targets.
In India, the accelerated depreciation scheme is re-announced, so to speak, re-introduced I should say into the market which fuels a positive development. In Australia, we have a bit of a standstill for the moment, negotiations around the RET, the Renewable Energy Target, has started and there is no conclusion as of yet. Looking at the market development then from an order point of view and from a Vestas order point of view, as I said, first nine months this year compared to the same period last time we are up 12%. A good growth in Americas, very much driven by the US offsetting lower activities in Canada and Mexico but also very good, healthy, high activity levels in Latin America. Europe and Africa, a very big gradient, up 5%. General improvement in Europe, partly then offset a limited order intake in Africa and in offshore.
So very good activity levels in countries like Germany, France, Nordics but also a bit newer to wind countries like Turkey. In Asia Pacific we see a decline of 27%. This is primarily driven by no Australian activity for the moment which traditionally has been a very strong market for us. So the order intake that we do see for the first nine months is from markets such as China and we also see good activities in partly new markets like South Korea and the Philippines. Moving over then to delivery, we see a considerable increase in activities. So the first nine months deliveries are up further 3%.
Very solid growth in Americas, again driven by to a large extent US with 760 MW but also good improvements in countries in Latin America, many of them like Uruguay, Peru, Mexico, Chile, and Costa Rica and Vestas has a good position in Latin America. Deliveries in Europe and Africa also up 46%. Strong development generally across the board in Europe. I talked about before, Germany, north, western part of Europe, we see good increases in delivery but also markets such as South Africa and Turkey. In Asia Pacific again, delivery down about 50% and again for Vestas it's really Australia and the swing in that market that accounts for the majority of this decline. If we look at the order in the quarter then we were down 377 MW year-on-year.
We should of course remember that in our business it's a project business and therefore orders between quarters can fall a little bit in or out of the quarter, so to speak. So for me it's more important that we look at the longer-term trend for the full year. The price per megawatt was at EUR 0.87 in the quarter and has been stable now for four quarters. As we have said before, the price per megawatt is influenced by the type of scope of the contract but also of a number of different other factors like wind turbine type, geography, scope, and of course the uniqueness of the offer. But I would say a very stable development for the last four quarters and as we have talked about before we clearly see the influence of more supply-only contract from the U.S. market in these numbers.
I know that there are a lot of questions about the U.S. and we also talked about the frame agreements before, so just to give you a snapshot of actuals as of today then. We talked before that we had 3.3 or have 3.3 GW of master supply agreement in the U.S. As of today, 2.1 of those are utilized, so to speak, which means that there is a potential of 1.2 left in those supply agreements. But it's of course also so that we take orders in that market outside the frame agreements and if you look at order intake year to date as of today and that has been updated with the order we announced yesterday, it's at 1.8 GW and out of those then 1.2 is sort of within the frame contract and 0.6 GW is outside the frame contract.
That leads me then to the backlog. Service backlog increased with EUR 0.2 billion while the combined backlog then due to the order intake and the high activity level in the quarter decreased with EUR 0.5 billion and the total backlog now stands at EUR 13.4 billion. With that I hand over to Marika, please.
Thank you. I think I used this one. Thank you, Anders. That doesn't work. If we have a look at the income statement and as Anders said earlier, it is significant improvement that we see in Q3 of this year and that we are obviously very satisfied with. So it is proof of the strategy that was implemented by Anders at the beginning of this year which talks about profitable growth for Vestas. Most of you here are aware of that we have our aim last year was to reduce the break-even level for the company and clearly in the income statement in Q3 you can see the leverage from that reduced break-even. So we have not only a revenue increase of 26% but I think worth more highlighting is the EBIT improvement that is above 140% improvement in the quarter isolated.
You also see an improvement in gross profit year over year, not only in absolute numbers but also in percentage. We also have a net profit, positive net profit in this quarter so we're continuing on a very good path. If we look at the service revenue, year over year we have also improved the revenue in service and we continue to grow with stable margins and the renewal rate in the quarter is 66% but also worth noticing here is that we continue to increase our service order backlog. All the numbers that you see here are excluding offshore as that has been now divested into the joint venture with Mitsubishi.
The balance sheet, the equity improvement primarily come from the equity we raised also in the beginning of this year but I think the real great improvement is the net debt improvement and we actually now have a cash position of over EUR 600 million. So the absolute change is over EUR 1.3 billion year-over-year in Q3. So a very good performance. We have also improved our solvency ratio with over 10% so we're close to 31% also in Q3 of this year. If you look at the change in net working capital, I think most of you are aware of that this is still a key focus area as we are a very capital-intense business and we have continued also in 2014 the project to continue to reduce net working capital and you can see despite higher activity in this year, i.e.
2014, we have reduced by over EUR 200 million year-over-year. So 12 months it still continues to improve and also if you compare with Q2 of this year we have a slight increase despite more megawatts under completion and I would like to highlight that is again as expected because we said earlier that we will see a higher activity in Q3 and building up to prepare for Q4. So we are continuing the focus and we're continuing to deliver under the project. The warranty provision is a result of the quality focus that we have within Vestas. The provisions made will of course vary because you have revenue varying so we provide 2% of the revenue so that will vary in between the quarters. Worth noticing is also the lost production factor that continues to be very stable below 2% for Vestas.
Cash flow statement, which is an obvious focus for us, and here I think the most important part is that our free cash flow in the quarter is driven primarily by improved earnings compared to last year, where it was mainly driven by the working capital improvements that you saw. But this year clearly earnings has a big positive impact on the free cash flow for Vestas. The total investments are increasing again as expected. The primary investments we make at this time is in the new blade technology. So it's for the V110 and the V126, the molds, so and again it is a light CapEx solution that we have implemented and the molds are actually movable. The capital structure that was also set, the targets were set at the beginning of this year. We said that net debt to EBITDA should not be above one.
We're clearly below that target and that we are obviously very satisfied with. We also have a solvency ratio above 30, and 30 is the target for Vestas when it comes to capital structure, and here you see a slight reduction compared to Q2, and that is primarily driven by the working capital items. So again, as expected, when we enter into Q3 of this year. This is return on the invested capital, which is one of the long-term targets that we have, and clearly driven here again primarily by earnings. We're on a very good path. We're close to 26% in Q3 of this year, and if we compare that to the 3.2 only 12 months ago, I would say it's a significant good improvement on the ROIC and our efficiency as a company. Thereby.
Oops.
Over to you, Anders.
Thank you, Marika. So outlook, as I said before then we have raised our outlook for the full year on revenue from minimum EUR 6 billion to between EUR 6.4 billion-EUR 7 billion. On EBIT margins before special items from minimum 6% to between 7%-8%. We maintain the total investment on approximately EUR 250 million and we raised the outlook on free cash flow from minimum EUR 300 million to between EUR 400 million and EUR 700 million euro and we have not changed on the service business that we expect to grow with stable margins. So with that we open for questions. Please.
Thank you, Anders. On the floor in the room?
Yep.
Yes. Morning, Lars Heindorff from ABG.
Yes. Morning, Lars Heindorff from ABG. A question regarding the Q4 activity level. Normally we see the Q4 activity, the fourth quarter, sorry, is the strongest quarter in terms of activity levels. Do you also expect that will be the case this year?
Yes.
And then, further on to that, in relation to the guidance, which seems, given your answer now, very prudent, you also expect that the unit cost in the turbine division will continue to decline?
Well, if you look at the fourth quarter, there is very high activity normally, and therefore in Q4 of Vestas, and I would say even in the last two weeks of the year we see high activity. And I would say the guidance that we have provided now is realistic guidance with what we see, and obviously being at this point of the year we have more clear visibility on both the risks and the upsides. So the guidance that we have provided has taken into account weather conditions at the later part of the year because we put up our turbines in the more windy area for obvious reasons, and also when it comes to the northern part of Europe the temperature also have an impact on that.
Okay. Looking into 2015, this is sort of a question regarding your planning. There's a rush right now, a very strong German market towards the end of the year and also there are still some uncertainties about the PTC extension in the U.S. For planning purposes, how do you plan for these things? I mean the pickup in the activity level in Germany and the uncertainty regarding the possible PTC extension in the U.S.
Yeah. I mean, as I said when I talked about the market outlook and the orders and so on, I would say that we see a stable market overall in the short term, and I would say Europe as overall we see a stable market. So in the short term there we see a stable market. PTC, of course you're right, I mean that is something that we follow very closely. It will not have any major effect on 2015 because we know what the rules are during 2015. It could have then the potential impact on 2016. So we work with different scenarios. We of course monitor very closely when we believe there could be a decision of the PTC because of course that influences different scenarios we have. Again, Vestas is a company with a global reach. We are present in 73 markets.
We've taken orders in 24- 25 markets so far this year. We think that we are well balanced. Of course we are aware of that markets will go up and down depending on political decisions. It creates a certain volatility but that's part of this business and Vestas is the company with a very good, I would say, global footprint and exposure in different markets.
Okay. Then the last question regarding the emerging markets, particularly Brazil, India, and China which you have decided that you want to focus upon. Can you give us an update on that, the situation in China? You've received a small order and then you lost one in Brazil.
Yeah. First of all, I think it's important, as I have said many times before, we launched a mid-term strategy that is 3-5 years. We clearly laid out what steps we need to take to get more relevance in some of the key markets. Overall we are doing really well in emerging markets. So as I said, we signed orders in 25 markets this year and many of those emerging markets, new markets for us.
When it comes to your specific question on China, we launched a new strategy in China based on both an internal change of mind, you could say, or internal focus on China, and that means bringing our latest product immediately to the Chinese market, changed our service philosophy because that clearly didn't fit with Chinese customers, the philosophy that we've had in other markets, but also based on market development that we see in China on the much bigger focus on cost of energy instead of just the initial capital investment. We see new turbine certification processes that we think place very well in hand to Vestas. We talk a lot about foreign or local players. I would argue that we can produce everything locally in China. We have a local setup in China.
We are extremely local in China and we need to get a better leverage of that when it comes to subcomponents that goes into our factory in China. There is a maturity that's coming, a maturity in the market that is improving and improving. We need to tap into those subsupplier maturity in China. So that's the strategy. If you look at in the quarter we have a small increase in delivery compared to a year ago. We can do better but this is the first step in a mid-term plan. For Brazil, the order that we lost is not, it's in Q4 so it's not reflected in the Q3 numbers. Brazil in general, we are progressing according to plan. We have announced the investment that we see necessary as the first step into Brazil. We are happy with the execution of the plan.
It's again a long-term plan and we are confident that we've taken the right first step and qualify for the FINAME which was our first sort of step as a bigger entrance in that market.
Any other questions from the room?
Sorry? Okay. We've switched then from the floor to any other questions from the webcast or telephone conference. Please.
Thank you very much. We will now begin the question and answer session by the telephone. If you have a question you need to press star then one on your phone. If you wish to be removed from the queue you can press # or pound sign. Once again, if you have a question press star then one on your phone. We have our first question from Sean McLoughlin from HSBC. Please go ahead.
Yes. Good morning and great numbers. I had three questions. Firstly, just looking at Q4, can you, we know Germany's strong, we know U.S. strong, are there any other two or three markets you could indicate where you expect particular strength on deliveries and completions? Secondly, on staff numbers, I've seen they're trending back up, you're back up above, kind of back towards end 2012 levels. I'm just wondering, is there more hiring to be done? Should we expect this number to trend back up to 20,000 or do you think you are now fully staffed for a strong Q4 under 2015 as well? And thirdly, if you could just, I think, give us a, I think, an update on the dividend itself as to what your current view is on payments of that. Thank you.
Okay. Delivering in Q4, as we have now given you a range that is obviously part of the project that we would deliver, we're not 100% sure is probably the wrong wording but that will vary in Q4. But you will see the regular composition in terms of countries that will be we expect to deliver in Q4 but some of the uncertainties are obviously the range that we have now provided for Q4. But it will be, again, very high activity also for Q4 with basically deliveries taking place at the really end of the queue.
If I comment on the staff question, we have increased the personnel. As you can see that is very much in line with the demand and the increased activity level. I can also say that the absolute majority or actually all is blue-collar staff so that is linked to the production and construction and the higher activity levels. We are confident that we are following the plan so we will increase on the blue-collar side in line with the activity level we see. We are confident that we are on the right level now for Q4 and when it comes to next year we will come back with our guidance on how we view that year in February as normal. When it comes to the dividend policy, we have a dividend policy.
We are clearly where we want to be, that is for the end of the year. It's clearly spelled out. We are in that territory now for sure. Of course, the final decision on the dividend is for the board, but we are definitely in the range, and that is what I can say regarding the dividend and the policy.
Sean, if I can just comment on the hiring. We have clearly taken down, again, the break-even for the company and that's also why we've reduced the number of headcount last year. We also clearly, as Anders said, spelled out that we will increase to meet the demand. That is part of creating a more flexible Vestas because from a machining point of view we could do more than the break-even, more than the 4.5 that we indicated last year but we would recruit to meet the demand from a workforce point of view.
Great. Thank you.
Okay. And our next question comes from K ristian Johansen from Danske Bank.
Thank you. A couple of questions from me. First, regarding the Brazilian order which was cancelled, what financial impact do you expect from this in Q4 and what have you included in your guidance?
Well, the Brazilian order, as you correctly point out, is a cancellation in Q4, and it is an order. It has not yet been delivered. All the effects from the order which would primarily be cash flow has been included in the forecast.
Okay. It's included in your guidance?
Yeah. Sorry. The guidance is the correct word. Yes.
Thanks. Then in terms of Q3, as I can see, you have booked EUR 88 million in revenue on offshore to the joint venture. Can you comment a bit about the margins on this part of revenue? I know last quarter you said that the margins on the offshore part was fairly high. Is this the case again this quarter?
Well, as you correctly point out, the offshore margins are normally higher because of the higher risks with the offshore projects.
It's the case again with this part?
Yes.
All right. Then in terms of the U.S. orders you pointed out, there is still a 1.2 GW under these master supply agreements. Can you give us any flavor on how we should think in terms of the timing here? Do you sense that your customers are awaiting the lame duck session to see if you'll get an extension of the PTC or and when is the latest that these customers can move and make it to firm orders with you if they need it to be completed by the end of 2015?
No. I would say that of course up until 2015 there is great clarity on sort of PTC qualification and so on. So I think it's of course after 2015 which is the key discussion point around PTC extension or not. So within this timeframe, as I said on the slide, also pointing out what's left of the frame agreements and that there are other orders also in the market still. So I think it's fair to say that our U.S. sales team will continue to be very busy for the next 3-6 months looking at this, so to speak, PTC cycle and then the activity after that will depend on whether or not PTC will be renewed or not.
Okay. That's clear. Then my last question, can you comment about the impact of the cost out program here in Q4 versus what you'd included in Q2?
Well, what we have clearly said now, if you look at the margins in Q3, there is the majority of the impact comes from increased volume. We also in Q3 of this year see an impact from the cost out program but not as significant as you saw in Q2 of this year.
Is there a further improvement in Q3 versus Q2 or is what you have in Q3 just a reflection of the improvements you did in Q2?
There is one component that is the cost out. There is also in this quarter a component that is mixed, not as positive as in Q2 of this year.
Okay. Thank you. That's all from me. Thank you.
Thank you.
We have another question from Jacob Pedersen from Sydbank. Please go ahead, sir.
Yeah. Hi. A couple of questions from me. First of all, could you talk a bit about product mix? We've had a couple of quarters now with very solid gross margins. Could you indicate whether there's product mix related to that also when we look forward into Q4, any unusual things in the product mix to come in Q4? That's the first question.
Well, again, the program that we have been through and actually the operational excellence that we continue, not only for the mid-term but also for the short-term, is a focus on cost out. It's a focus on cost out on products. It's also a focus on continuing, focusing on the fixed capacity cost that we have in the company and that you can see is well under control. The mix will always vary quarter by quarter and I know we've said this numerous of times but it's big projects and you don't control exactly what to deliver in each quarter. You have a good flavor and what you can clearly see compared to last year, we continue to improve our gross profit. Clearly there is a focus on the overall profitability of the projects and the cost of the products.
Okay. Next question is your service business. We have quite dampened growth in the first three quarters of this year and renewal rates that are not as good as they were once. Any comments to where you see this going? Is this periodically will growth increase when we look forward? What is your expectations for service business?
Well, Anders, sorry.
No. No. But I think first of all you should look at the backlog of service that is increasing at a healthy rate, I would say. Renewal rate in the quarter was a little bit below our average. Again, not significant and not a big worry for me. We had then in the quarter because of course we have a lot of service orders and it's depending on how much of those actually comes up for renewal in a quarter and where they are, you will see variance in the renewal rate. And in this quarter we had, from a relationship point of view, quite a lot of service contract from China that usually don't renew more than the normal first two years. So that rate we expect, as we said from the beginning of the year, the renewal rate to be fairly constant and that's what we believe.
We see a good growth in the order backlog of services and we see very stable margins. If I have anything more there to add, Mike?
No. I think that the point to point out, even despite the lower renewal rate, as you said, Anders, is the increased order backlog for service business.
Okay. My last question is more structural. We've seen oil price decrease from around $110 a barrel to now around $80. What is your view on the impact of the wind industry if $80 a barrel of oil is the new normal?
Yeah. I mean, if I try to answer that in three different blocks maybe. But first, of course, oil price has a big impact on macroeconomy overall and of course we, as any other company, are dependent on the macroeconomy of the world. And of course, electricity production is linked to the overall financial development. So from that aspect, of course, there is a link. So the oil price, big influence of the overall macro, electricity generation, electricity prices depending on the overall macroeconomy. So there is a link there. On the more specific link, it's less of a linkage actually because we, of course, in that sense have a higher linkage to coal prices, gas prices, prices for nuclear, prices for hydro which is used for electricity generation and that oil is to a lesser extent.
Of course, there is a link between oil prices and gas prices but again, it's a secondary link. I would say that it's also oil prices, of course, is more of a spot market type of environment with very quick moves in prices. Electricity generation is long-term projects that are, in many cases, less dependent on spot prices, so to speak. There is also a positive argument for wind actually if you want to hedge yourself against volatility in those commodity prices. The price for the wind is zero. It's well known and the investment in the wind park is also well known. So if you want to hedge yourself against volatility in the oil price, wind could be a good alternative.
Okay. Thanks a lot. Our next question comes from Claus Almer from Carnegie. Please go ahead, sir.
Thanks. Yeah. Hi. I also have a few questions. The first question goes to the backlog. How is the profit quality of the backlog compared to what we've seen for the last nine months? That would be the first one.
Okay. Sorry, Klaus. I think you have to repeat yourself then.
Sure. Looking at the backlog, if you look at the backlog today, how is the profit quality compared to what we've seen in the P&L for the last nine months?
Okay. Then I get your question. Obviously, we don't talk about the profitability level on the order backlog. What I would say overall when it comes it's going to be a mix in the order backlog also. As Anders pointed out earlier, we take in orders from 25 different countries throughout the last nine months in Vestas. We continue the cost out on the product. That obviously also will have an impact on the mix question. So what I can say is that the focus on profitability and increasing the gross profit also going forward is top on the agenda.
Just to be 100% sure, so on average, the quality of the backlog is not that different from what we've seen in the P&L for the last nine months?
No.
No. I think again, I mean, we say stable price per megawatt. You've seen that for the last four quarters. We have improved our gross margins. We have 17.5% this quarter. We deliver 9% EBIT this quarter. So yeah.
Okay. My second question goes to this higher guidance. I know last quarter there was a lot of question about the bonus. I'm not going to ask for a specific number but given the higher guidance, have you made a provision now in the Q3 results?
Well, overall, the guidance does include provisions so it's after bonus. We do as required. We provide for bonus when we see a need for it. What I can say, Claus, is that you will not see a spike of bonus provisions in Q4 and that should also we are sort of overall controlling the bonus questions. We're also delivering now a 9% EBIT in Q3 and we're also saying that the guidance is after bonus. So it is controlled and we are providing when required.
Sure. Okay. Thank you. Then my final question is just a little bit of a repeat from my earlier question but in the report, you mention that the U.S. market continues to be cash-priced by demand caused by the PTC. In my view or how I read this comment is that you expect to sign more U.S. orders in 2014. Is that correctly understood?
What I said was that I pointed out the potential on the frame agreements and you're also right that the windows for new orders in the U.S. for the current PTC cycle, if I put it like that, is not closed. That was also my comment on the question before that our sales team in the U.S. is very busy and expect them in this cycle to be very busy for the next 3-6 months. Then, of course, it depends on what happens with the next potential PTC cycle.
Okay. Thank you so much.
Thank you.
Okay. And our next question comes from David Vos from Barclays. Please go ahead, sir.
Yeah. Good morning, gentlemen. A couple of questions. First, on Europe, what can you say about the outlook for 2015? It appears to me that with the new German regulations and with the, say, the newer markets in Germany already at quite high levels, that market perhaps has peaked already. So if you could comment on the order intake outlook for 2015, that would be great. I'll take the questions in turn.
Okay. No. As I said, on Europe, I think it's very encouraging that the EU now have decided on renewable targets on 2030 on top of the renewable target that we already have in 2020. I think, as I also described when I talked about the orders, we see a stable market not just in Germany but we also see good markets in the Nordics. We see France as a good example in Europe increasing their renewables. So overall, we see a stable market. We see a long-term framework from the EU. And on specific orders for 2015, my overall comment is that when it comes to our outlook and our guidance for 2015, we will come back to that in February of next year.
Right. Understood. Could you just help me clarify the German-specific outlook then? Because it seems to me that when there's a cap placed that is several hundred megawatts lower than the previous year installations, I can't help but think that the market will come down. And per your previous comments, that repowering isn't that much of a service, sorry, of a revenue generator for Vestas yet. I just struggle to see how you can come to a stable market under those circumstances.
No. What I said was that we see the region, Europe and Africa, as a stable region. That is what we saw, that is what we see, and that is what I described in the orders book that we see in actual up until September. We see, as I also described, actually fairly high activity levels on delivery. I also described that we see movements within different markets up and down, but as a balance for the region, we see a stable region.
Okay. Understood. Then on your new China strategy, could you elaborate on just how much megawatts of orders or revenues you're looking to generate in that market and also who you are looking at to take share from? I mean, is it from the top or the middle-tier players? How do you think about that, your positioning in that market?
Yeah. First of all, Vestas is a top-tier player and we will continue to be a top-tier player. So we have no other ambition. And that also means that, of course, we are looking at the opportunities in that segment of the market. We continue to be that player and want to be that player going forward. I will not here, of course, point out certain competitors but we will focus on our strength and that is definitely as a top-tier player. That also means that what I talked about before, that the shift in the market that we see from more focus on initial CapEx to the cost of energy for the lifetime of the project, we think is a good opportunity for us and plays well into our position globally and the position we also can take in China.
We have not set up or communicated a specific megawatt or gigawatt, for that matter, target in the Chinese market. Our ambition is to grow and our ambition is to grow from where we are today. I should also point out that it is a mid-term strategy and we are putting the steps in place to achieve that year-on-year growth ambition that we have.
Okay. Finally, on the cash balance that you're developing which is obviously quite handsome and growing, what is your intention on this? We've heard, obviously, your comments about a dividend but in a more strategic framework, how should a Vestas shareholder expect that cash to be deployed longer term?
Well, first of all, as you point out, we're very happy with the cash position that we have at this point and we are obviously continuously looking at how to maintain a good position. So when it comes to anything specific, which one would be a dividend, we will get back to. The dividend is obviously not our decision. It's a board decision.
Sure. I did ask on comments beyond the dividend. I think the consensus is that that will be reinstated and I appreciated that's a board decision. But can you give some steer of how you longer term want to apply that cash balance?
Well, again, as I said, I mean, there are different means on what to do with the cash balance that we have and we will come back to that in an appropriate time.
Okay. Thank you very much.
Thank you.
Okay. Our next question comes from Patrik Setterberg from Nordea. Please go ahead, sir.
Yes. Good morning and good numbers. Congratulations. I just have one small question. It's regarding what is written in note 8 in your report and it is Mitsubishi's approval of the closing balance of the new joint venture offshore. You say that the approval has been postponed into the fourth quarter. Could you just tell me why?
Yeah. First of all, what I would like to say is that the cooperation with Mitsubishi progressed very well. It is a few minor outstanding items in the agreement that we're waiting for the final signature of, but there's completely insignificant outstanding issues. So the cooperation is progressing according to plan.
Okay. So there's no discussions, nothing we should be worried about?
Nothing to be worried about.
No. I would say on the contrary. I think we are progressing really well with the partnership with Mitsubishi and I would also say that when it comes to the technical performance and the bringing to market of the V164, we are also on track on the milestones that we have set out together and on the commercial internal milestones, we are also on track. So everything is on track on the plan that we talked about and communicated as the basis for the joint venture.
Okay. Very good. That was it for me.
Thank you.
Okay. And our next question comes from Shai Hill from Macquarie. Please go ahead.
Yes. Good morning. It's Shai Hill at Macquarie. I had two broad questions, please, and maybe they're for Marika. The first one was just on payables. Obviously, you've delivered a lot of working capital improvement through increasing payables. I think it's EUR 1.4 billion roughly on your balance sheet. Now, can you give us some estimate or some quantum of how much further there is to go in reducing your average payables balance?
Yeah. Sorry.
Ask the second one, Marika. It's just on the margin, really. I know you've had various questions but I just wanted to get some more color on the margin. Obviously, it was a spectacular performance in the third quarter at 9%. I wanted to get some sense of the sustainability because, obviously, the slide says largely down to operational leverage even though staff numbers are rising very strongly. I mean, are we saying, for example, crudely, that if Vestas could deliver EUR 2 billion a quarter in revenues, that it could deliver a 10% EBIT margin? Is that what we're saying or was there something unusual in the project mix in the quarter?
Okay. If we start with your first question on the net working capital and the payable items, in the project that is running, we have pulled all the levers in the working capital, payable being one of them. I would say that on the payable side, in terms of improved payment terms, we are good to go as we speak now. I don't think we will reduce much more but if you look at the overall focus within the working capital item, it will continue to be the megawatt under completion because that is the big part in what we're tying up. So we are, I would say, focusing and controlling in an increased activity environment continue to improve on the net working capital, which I think is, and in particular, control the net working capital.
So the focus will continue and the focus will primarily be on the bigger item and that's the megawatt under completion. Secondly, when we talk about the margins and I understand, obviously, where you're heading, what we have said all along is that, yes, we have reduced the breakeven levels for the company. We have leveraged from the cost out that we have done and also continue to do. So the focus is still improving the gross profit for the company going forward. There will be always in the quarters mixed impacts because we're selling on a global basis. We're also selling different scope and different type of products but the cost out and the continued improvement on gross profit and therefore also the EBIT will continue.
Okay. I think we are getting closer to the end, so if we can have last questions.
Our last question comes from Klaus Kehl from Nykredit Markets. Please go ahead, sir.
Yeah. Hello. Klaus Kehl from Nykredit Markets. If I just have the time for one question, then I would ask you, do you think you will be able to deliver the rest of the frame agreements in the US in 2015 or do you think any of them will reach into 2016? And would there be any idea for the clients to install the turbines in 2016 rather than 2015? That would be my question.
I would say, generically speaking, of course, on the part of the frame contract that we have declared as firm and unconditional orders, those, of course, we will deliver according to the commitment that we have with our customers in the U.S. and we are confident on that delivery. I think it's also fair to say that, of course, the majority of those delivery on the already, as I said, firmed and declared orders are within 2015. Then I will not speculate further than that. If there are potential some customers who could take later delivery, I think that's really a question for the customer side and not for us in Vestas too. We are confident that we can live up to all the delivery commitment that we are committed to do to our customers.
Yeah. But the question was more related to the remaining part of the frame agreement. Do you simply have the capacity to deliver another 1.2 billion or, sorry, 1.2 gigawatts of turbines in 2015 on top of what already has been signed?
Yeah. I mean, yes, to be clear on that point, we will follow our normal order confirmation process which means that when we get firm and unconditional orders, that is when we will announce those orders. So what I said about the potential in the 1.2 that is left is that we are working on trying to see what we can secure of those 1.2 and I just wanted to point out that they are not secure as of today because we need to get those orders firm. What I also said was that, and as you saw on the slide, is that there are also possibility of other orders as we have seen on actual up-to-date on orders outside the frames and that could mean that part of the frames are left for future years in the U.S., for example.
So this was just to get clarity on the frames and how we work within those frames and what exists outside the frames. But again, we have the capacity in the U.S. We can definitely do more than the current order intake, actually, that we have in the U.S. So I'm confident that if and when we get more orders in the U.S., we can do that delivery as well.
Okay. Thank you.
Thank you. So then I would just like to thank everyone that is here today and thank everyone that has called in and thank you for the interest and have a good day and a good week.