Good morning and welcome to Vestas' Q1 result for 2012. Welcome to those in the room, and a particular welcome to all of my colleagues, around the world watching this, and to everybody else who have decided to tune in today for this Q1 2012, presentation. The agenda we're going to cover is going to basically focus around these 6 items here: introduction, some organizational updates, our financials, order intake 2012, Vestas, and the market share in general on 2011, before we turn to the Q&A session, at the end of the presentation. If we look into the main events, basically highlighted here on 1 slide, what happened in the Q1, then firstly, it's important to say that the outlook for EBIT, cash flow, and revenue, are retained.
But there's no doubt that Q1 was disappointing in terms of revenues, and in particular on earnings, which I will come back and talk about later on. And we are also right now keeping on the work with aligning the organization not only for 2012 but also for 2013, as the outlook, in particular in the U.S. and elsewhere, of course, looking quite challenging, and we need to have that in mind. We are still seeing a very high activity level for the rest of the year, both when it comes to shipments and manufacturing, but of course also on installations. Unfortunately, in this quarter, we have had to make an additional provision of EUR 40 million, as we are seeing that there could be potential problems with some of our V90-3.0 MW turbines and the gearbox supplied to Vestas.
Actually, in total, we have identified 376 boxes that could have a problem, and therefore we are making an additional provision today of EUR 40 million for this. The order intake actually has been realized in very tough markets, and in fact, in Q1 the order intake is up 100% compared to Q1 2011. And we are also going to give an update on the V164, and finally, as I said, we are going to talk about the market share. Starting with the outlook for EBIT, cash flow, and revenue, as I said, they are retained. That means revenues around EUR 6.5 billion-EUR 8 billion, of which service is expected to constitute EUR 850 million, with an EBIT margin from 0%-4%, whereas on services, we'd still expect an EBIT margin of around 14%, and investments of around EUR 550 million, of which EUR 350 million are tangibles and EUR 200 million intangibles.
Also, the free cash flow is maintained to be positive, whereas the warranty provisions previously was mentioned to be below 3%, but are expected to be around 3%, very much due to the V90 problem that I just mentioned. If we look at the earnings for the full year and also here in the Q1, of course we are significantly impacted by the too high manufacturing cost predominantly on the V112 and GridStreamer technology, which we are working on reducing here over the year. And of course also this, we are seeing, nothing new here, that depreciation and amortization are increased with EUR 100 million in 2012 compared to 2011. Previously we had expected special items to for the layoff would be around EUR 50 million.
We now expect this to be around 50-100, and the main reason for this is that some of the layoffs are more expensive than what we have anticipated, which also has to do with the geographical spread of where the layoff actually do take place. Starting with an update on the organizational changes, we announced last week that Mr. Dag Andresen is going to join Vestas around the 1st of August this year to take up the position as CFO and being responsible for finance. This means that we still have two positions to fill in the executive management, and until those are being filled, then I will still look after also the manufacturing, and Anders Vedel will look after global service and solutions, until those positions have been filled.
Concerning the actual implementation of the new organization, things have gone very much according to plan, and as expected we should be ready by the beginning of April, which we were, and that basically means now we are operating fully in the new Vestas organization with all the changes that have taken place over the last number of months, and we are now therefore also in a position to further take the necessary initiative within each of the executive vice president's areas in order to optimize the organization going forward, and we'll come back and talk about this as well. Changing the organization while at the same time we have to deliver 40% more compared to the same time last year, and this slide was also showed in Q4 when we gave the guidance for the full year 2012 on shipments.
As one can see here, we expect the activity level to be very high here at mid-year, which means it is at this moment that we are extremely busy. If you look at the deliveries, i.e., the main driver for revenue, when they're expected to be handed over to the clients, you will see that we see a different shape for the deliveries than we do on the shipments, but of course both of them are expected to be significantly higher compared to 2011. And that of course also means that we will see fluctuations over the quarters in terms of the actual result. On the employee overview, as I said, we are still maintaining our target of being of around 20,400 people by year-end. By the end of the Q1, we were slightly less people at Vestas compared to end of 2011.
Two reasons for this: we still have people working here, even though their contracts have been terminated. But of course also we are seeing a shift that we have so far made more reductions within the salaried areas, whereas we due to the high activity level have taken some people in in manufacturing and in the service business, but we are still maintaining that we will get down to the 20,400 at year-end, meaning that the previously announced EUR 150 million run rate by the end of 2012 is still what we are looking at. These figures do not include the U.S., where we expect to take a decision in the Q3 concerning the impact this could have on top related to the situation over there.
Turning to the financials in the Q1, then shipments, i.e., out of Vestas factories, are of course a primary cash generator for Vestas and therefore very important to pay attention to. And as you can see, we actually have increased the activity level with 47%, compared to Q1 last year. And as I mentioned, since we expect a total increase in activity level of around 40%, we are on track in order to ramp up and get executed, and get these orders executed. If you look at the split on the three regions, you will see that in particular in Americas the activity level is significantly up, which is of course not surprising, with the potential expiration of the PTC by the end of the year.
If we look into the deliveries, which as I said is the primary revenue driver, then the deliveries are up 28% in Q1 2012 compared to Q1 2011. And there it has to be said that the proportion of turnkey deliveries was higher, and therefore it also means that when we look at some of the megawatts that are handed over here in the Q1 2012, compared to the revenue that I will actually speak about in a minute, those are the fluctuations that we have to pay attention to when we look at the development quarter by quarter. Looking at why is it that the earnings in the quarters can fluctuate so much, and why is it maybe that a megawatt is just not a megawatt?
We have previously presented this slide, and just to reiterate, there are a number of things that can impact what we are handing over in the quarter and the earnings attached to that. And you have 10 examples that we have stipulated here: the type of contract, the scale, the OpEx/CapEx allocation, design lifetime, etc., etc., the risk associated with the contract. And that means that that the margins of the projects handed over will fluctuate from quarter to quarter, and therefore it is difficult to estimate exactly how things are going to develop quarter by quarter, and it's just basically to remind everybody that that is the reason why we see these huge fluctuations. One of the revenue drivers is obviously megawatt under completion, which means that what is the work that we are undertaking at this moment.
And if you look at the end of the Q1 2012, then, the megawatt under completion are actually lower, compared to, for instance, Q4, 2011. And of course megawatt under completion are revenue drivers for the coming quarters, which again, of course, is important to pay attention to, when you look at the development going forward. What is also important to pay attention to is that one look at the net working capital, that Vestas' ability to have a very fast turnaround time from shipment out of plants until they are handed over to clients are, of course, very important. And there, as you can see over the last few years, we have managed to really reduce the megawatt under completion quite a lot, which again, of course, has a positive impact on the cash development.
Turning to the actual income statement, as I said, revenues are up with 4%, whereas deliveries were up with 28%. And again, this is also due to the fact the kind of megawatts that are being taken in and how much revenue they actually generate in the quarter in question. If we look at the fixed cost, I will show you a breakdown a little later, they are very much up, and the main reason for this steep increase are the depreciations. But no doubt, if you look at the rest of the fixed cost items, we are working very hard to bring down the other fixed cost, and I'll come back and show that in a minute, which of course has a big impact on the earnings in the Q1 this year.
Special items with an impact of EUR 41 million, all in all leading to, as I said, an unsatisfactory result of -EUR 245 million for the Q1 here 2012. And again, the too high manufacturing cost on the V112 and GridStreamer have a big impact on the margins that we are carrying here in the Q1, plus of course the additional warranty provisions of EUR 40 million. If we move on and look into the development on the gross margin and the fixed cost, as I said, the gross margin being impacted by particularly the new technology and the higher depreciations, then the fixed cost split, as you see on the right-hand side of this bar, of EUR 216 million, constituted of EUR 114 million on depreciation and amortization, whereas other fixed costs were at around EUR 102 million.
If you look at that on the blue bar, you will actually see that the big increase from Q1 2011 to Q1 2012 comes from depreciation and amortizations, and not so much from the other fixed costs that we are also looking to lower here in the rest of the year. After Q4, I got, or we got, a number of questions on how is it that you're going to take the cost out of the V112 and GridStreamer, and how can this be done. Without going into a lot of specific details, let me just say that this is not just one thing you do. This is a multiple of a lot of things that you go in and change step by step.
And here I brought some examples of how you can actually take cost out and bring the V112 back to the original design cost. If you look at the middle of this slide, you can see that, for instance, a simplification of the crane gallery in order to standardize the rear frame, etc., are areas where you, for instance, can take cost out not just on the material cost, but also making it much easier to assemble and thereby bring down the cost of the bill of material, but also on the throughput time that it's going to have when you actually manufacture it. Another example on the left-hand side, cost reduction on the lift galleries and towers and so forth and so on.
One has to remember that there are a lot of components in a turbine, and therefore it is a lot of small things that needs to be updated and brought back that is going to ensure that we see the design cost happening. And as again previously mentioned, this is something that will take time before it actually filters in for Vestas here in 2012. If we look into the service revenues, you will see that the service revenues from Q1 2011 to Q1 2012 has actually gone up with 17%. And today we are disclosing for the first time what is actually the value of the service business that Vestas has.
As you can see here, the backlog by the end of the Q1 stands at EUR 4.2 billion of service business that Vestas has to execute, which is again, of course, very much related to the organizational changes that we are going through in order to make sure that the two future revenue streams based upon both turbines and services, but the actual value of the backlog is now standing at EUR 4.2 billion by the end of the Q1. Turning to the balance sheet, a big delta from Q1 2011 to Q1 2012 are related to the completed development projects that went from EUR 170 million to EUR 572 million, thusly thereby seeing that the depreciations are significantly up in 2012. And that is when we brought the V112 and GridStreamer into serial production.
Most of the other items on the balance sheet are basically not that affected. However, two other issues to be aware of, if Vestas, if you compare to Q1 last year, then the net debt actually decreased from EUR 1 billion to EUR 850 million, even though it went up in the Q1 2012 compared to Q4 2011. But compared quarter by quarter, it was reduced by 15%. And one of the main reasons for that was that, vestas' net working capital was significantly reduced from EUR 910 million down to EUR 20 million, thanks to all the efforts that are being done throughout the organization in further increasing the execution capabilities.
If we try to make a deep dive into the net working capital, and as I said, from EUR 910 million down to EUR 20 million, and looking at the left-hand side of the slide, you will see where these improvements are coming from, very much driven by prepayments from projects under construction and new orders, but of course also from payables. And even though we are also seeing an increase in inventories, which is maybe not so surprising when we know what we have to increase here in the coming quarters at our facilities. If we just look over the last three months, you will see there that the inventories are significantly up in the quarter, and as I said, very much due to what we have to execute going forward, where it's being sort of counterbalanced by the prepayments.
So overall, despite the very heavy ramp-up, not a big change on the net working capital. Warranty provisions, we actually anticipated in this quarter would be a very good story. But unfortunately, due to the V90 provision, as you can see here in Q1, we have to increase them to EUR 62 million, even though the actual consumption of provisions are the lowest ever at EUR 30 million. As you can see the development on the blue bars, we have unfortunately therefore to increase the provisions in order to counterbalance this, but the actual consumption. Turning to the actual income statement, as I said, revenues are up 4%, whereas deliveries were up 28%. And again, this is also due to the fact the kind of megawatts that are being taken in and how much revenue they actually generate in the quarter in question.
If we look at the fixed cost, I will show you a breakdown a little later. They are very much up, and the main reason for this steep increase are the depreciations. But no doubt, if you look at the rest of the fixed cost items, we are working very hard to bring down the other fixed cost, and I'll come back and show that in a minute, which of course has a big impact on the earnings in the Q1 this year. Special items with an impact of EUR 41 million, all in all leading to, as I said, an unsatisfactory result of -EUR 245 million for the Q1 here 2012.
And again, the too high manufacturing cost on the V112 and GridStreamer have a big impact on the margins that we are carrying here in the Q1, plus of course the additional warranty provisions of EUR 40 million. If we move on and look into the development on the gross margin and the fixed cost, as I said, the gross margin being impacted by particularly the new technology and the higher depreciations, then the fixed cost split, as you see on the right-hand side of this bar, of EUR 216, constituted of EUR 114 on depreciation and amortization, whereas other fixed costs were at around EUR 102.
And if you look at that on the blue bar, you will actually see that the big increase from Q1 2011 to Q1 2012 comes from depreciation and amortizations, and not so much from the other fixed costs that we are also looking to lower here in the rest of the year. After Q4, I got, or we got, a number of questions on how is it that you're going to take the cost out of the V112 and GridStreamer, and how can this be done. And without going into a lot of specific details, let me just say that this is not just one thing you do. This is a multiple of a lot of things that you go in and change step by step.
And here I brought some examples of how you can actually take cost out and bring the V112 back to the original design cost. If you look at the middle of this slide, you can see that, for instance, a simplification of the crane gallery in order to standardize the rear frame, etc., are areas where you, for instance, can take cost out not just on the material cost, but also making it much easier to assemble and thereby bring down the cost of the bill of material, but also on the throughput time that it's going to have when you actually manufacture it. Another example on the left-hand side, cost reduction on the lift galleries and towers and so forth and so on.
One has to remember that there are a lot of components in a turbine, and therefore it is a lot of small things that needs to be updated and brought back that is going to ensure that we see the design cost happening. As again, previously mentioned, this is something that will take time before it actually filters in for Vestas here in 2012. If we look into the service revenues, you will see that the service revenues from Q1 2011 to Q1 2012 has actually gone up with 17%. Today we are disclosing for the first time what is actually the value of the service business that Vestas has.
As you can see here, the backlog, by the end of the Q1 stands at EUR 4.2 billion of service business that Vestas has to execute, which is again, of course, very much related to the organizational changes that we are going through in order to make sure that the two future revenue streams based upon both turbines and services, but the actual value of the backlog is now standing at EUR 4.2 billion by the end of the Q1. Turning to the balance sheet, a big delta from Q1 2011 to Q1 2012 are related to the completed development projects, that went from EUR 170 million to EUR 572 million, thusly thereby seeing that the depreciations are significantly up, in, in 2012. And that is when we brought the V112 and GridStreamer into serial production.
Most of the other items on the balance sheet are basically not that affected. However, two other issues to be aware of, if Vestas, if you compare to Q1 last year, then the net debt actually decreased from EUR 1 billion to EUR 850 million, even though it went up in the Q1 2012 compared to Q4 2011. But compared quarter by quarter, it was reduced by 15%. And one of the main reasons for that was that, vestas' net working capital was significantly reduced from EUR 910 million down to EUR 20 million, thanks to all the efforts that are being done throughout the organization in further increasing the execution capabilities.
If we try to make a deep dive into the net working capital, and as I said, from EUR 910 million down to EUR 20 million, and looking at the left-hand side of the slide, you will see where are these improvements coming from, very much driven by prepayments from projects under construction and new orders, but of course also from payables. Even though we are also seeing an increase in inventories, which is maybe not so surprising when we know what we have to increase here in the coming quarters, at our facilities. If we just look over the last three months, you will see there that the inventories are significantly up in the quarter, and as I said, very much due to what we have to execute going forward, where it's being sort of counterbalanced by the prepayments.
So overall, despite the very heavy ramp-up, not a big change on the net working capital. Warranty provisions, we actually anticipated, in this quarter, would be a very good story. But unfortunately, due to the V90-3.0 MW provision, as you can see here in Q1, we have to increase them to EUR 62 million, even though the actual consumption of provisions are the lowest ever at EUR 30 million. As you can see the development on the blue bars, we have unfortunately therefore to increase the provisions in order to counterbalance this, but the actual consumption is at the lowest level ever. This is also due to the fact, if you look at the lost production factor , that we are around 2 on the LPF, and we still maintain that we'll be able to bring it down below 2 despite the challenges that we are seeing now, for instance, on the V90-3.0 MW.
If that had not been the case, we would have seen a very good development within this area in the Q1. Just detailing the V90 challenges in our performance and diagnostic centers, we can see that some of the V90 boxes are potentially not performing as they should. I should just say that these 376 gearboxes delivered, of which 36 stands offshore, have been delivered between June 2009 and September 2011. That is approximately one-third of all the deliveries that have been taking place in the period that could be affected by this problem. Vestas will pursue all relevant actions with regard to compensation for this going forward, but we at this stage find it proven that we make this additional provision of EUR 40 million.
Turning to the cash flow statement, the cash flow in the Q1 2012 was negative with -295, but that is actually an improvement of EUR 136 million, compared to Q1 2011, where it stood at -431. Where are the major items coming from in the improvement? As I mentioned, the change in the working capital, which has been reduced from 238 to 91, and the lower investment level from 164 down to 91 are the two main reasons for the improvement in the free cash flow for the Q1 2012. Looking a little further into the cash flow, you have here on the left-hand side the development all the way back since 2008 and the journey that Vestas has been on in improving the cash flow situation.
Just for comparison between Q1 2011 and Q1 2012, then the net free cash flow was actually positive by EUR 250 million. Of course, between the quarters, we are seeing huge fluctuations. The free cash flow, the dark blue here, is the accumulated over the last 12 months. Due to the very unsatisfactory earnings result in the Q1, that of course impact heavily our net debt to EBITDA, and you're seeing that is jumping up from the 179 to 395. On the blue, you have the expected debt situation by the end of the year as we are seeing it today. The return on the invested capital is of course also negatively impacted due to the earnings result in the Q1.
However, the service business is obviously pulling that in the other direction, but cannot compensate for all the losses that we are incurring because of the reasons that I previously mentioned. Looking into the consumption is at the lowest level ever. This is also due to the fact, if you look at the lost production factor , that we are around two on the LPF, and we still maintain that we'll be able to bring it down below two despite the challenges that we are seeing now, for instance, on the V90-3.0 MW. So if that had not been the case, we would have seen a very good development within this area in the Q1. Just detailing the V90-3.0 MW challenges, in our performance and diagnostic centers, we can see that some of the V90-3.0 MW gearboxes are potentially not performing as they should.
I should just say that these 376 gearboxes delivered, of which 36 stands offshore, have been delivered between June 2009 and September 2011. That is approximately one-third of all the deliveries that have been taking place in the period that could be affected by this problem. And Vestas will pursue all relevant actions with regard to compensation for this going forward, but we at this stage find it proven that we make this additional provision of EUR 40 million. Turning to the cash flow statement, the cash flow in the Q1 2012 was negative with minus EUR 295 million, but that is actually an improvement of EUR 136 million compared to Q1 2011, where it stood at minus EUR 431 million. And where are the major items coming from in the improvement?
As I mentioned, the change in the working capital, which has been reduced from 238 to 91, and the lower investment level from 164 down to 91, are the two main reasons for the improvement in the free cash flow for the Q1 2012. Looking a little further into the cash flow, you have here on the left-hand side the development all the way back since 2008 and the journey that Vestas has been on in improving the cash flow situation. Just for comparison between Q1 2011 and Q1 2012, then the net free cash flow was actually positive by EUR 250 million. But of course, between the quarters, we are seeing huge fluctuations. But the free cash flow, the dark blue here, is the accumulated over the last 12 months.
Due to the very unsatisfactory earnings result in the Q1, that of course impacts heavily our net debt to EBITDA, and you're seeing that is jumping up from the 179 to 395. And on the blue you have the expected debt situation by the end of the year, as we are seeing it today. The return on the invested capital is, of course, also negatively impacted due to the poor earnings result in the Q1. However, the service business is obviously pulling that in the other direction, but cannot compensate for all the losses that we are incurring because of the reasons that I previously mentioned. Looking into the overall investments, we are maintaining the overall investment level for the full year, even though in Q1 they were lower compared to previous years or to previous quarter.
Turning now into the development of the order intake, you will see that there is actually a significant improvement in the order intake in the Q1 2012 compared to Q1 2011. Historically, the Q1 is always a slow quarter. The main reason for this doubling from Q1 2011 to Q1 2012 basically relates to some major orders in the United States, but also in Mexico, who together actually constitute half of the order intake in the Q1 2012. Looking at the development of the prices, as you can see here, the price development between Q1 2012 and Q4 2011 are more or less on par, but with heavy fluctuations between each of the quarters, depending very much on which type of contracts we are taking in, and also in which regions can have big fluctuations on this KPI.
I should also say that it's for sure that it's a very competitive market that we are operating in at the moment, and therefore, it is a tough market environment that we have to relate to. But when we look at what we are capable of offering our customers, we do believe that Vestas is in a good position to counterbalance this very competitive market that we are seeing now. This actually means that we have, by the end of the Q1 2012, the highest ever backlog of just around, just below EUR 10 billion on turbines. And as you can see here in the geographical split, Europe is still, by far the biggest than Americas and then Asia-Pacific.
That, with EUR 10 billion, is, of course, important to take into account when we look at what we have to execute in order to get to our full year expectations in terms of revenues. Turning to an update on the V164, where we have today announced that the installation of the prototype now expects to take place in 2014 instead of 2013. The reason for that is that we are seeing when we look at some of the uncertainty in the market outlook that we are paying attention to. Also, I should mention that Vestas have previously announced that we would consider, if it would make sense, to share the V164 development with other partners. And we have received inquiries from potential partners that we are evaluating to see whether or not this is a possible route forward or not.
We should also just highlight here that when we look at some of the activities that are going on within the offshore sector, we are of course finding worrying that we are seeing that for instance in some countries it is a demand to have national production in order to compete with the tenders, which is another matter that we are paying deep attention to when looking ahead. Overall, investments, we are maintaining the overall investment level for the full year, even though in Q1 they were lower compared to previous years or previous quarter. Turning now into the development of the order intake, you will see that there is actually a significant improvement in the order intake in the Q1 2012 compared to Q1 2011. Historically, the Q1 is always a slow quarter.
The main reason for this doubling from Q1 2011 to Q1 2012 basically relates to some major orders in the United States, but also in Mexico, who together actually constitute half of the order intake in the Q1 2012. Looking at the development of the prices, as you can see here, the price development between Q1 2012 and Q4 2011 are more or less on par, but with heavy fluctuations between each of the quarters, depending very much on which type of contracts we are taking in, and also in which regions can have big fluctuations on this KPI. I should also say that it's for sure that it's a very competitive market that we are operating in at the moment, and therefore it is a tough market environment that we have to relate to.
But when we look at what we are capable of offering our customers, we do believe that Vestas is in a good position to counterbalance this very competitive market that we are seeing now. This actually means that we have, by the end of the Q1 2012, the highest ever backlog of just around, just below EUR 10 billion on turbines. And as you can see here in the geographical split, Europe is still, by far, the biggest than Americas and then Asia-Pacific. And that, with EUR 10 billion is, of course, important to take into account when we look at what we have to execute in order to get to our full year expectations in terms of revenues. Turning to an update on the V164, where we have today announced that the installation of the prototype now expects to take place in 2014 instead of 2013.
The reason for that is that we are seeing, when we look at some of the uncertainty in the market outlook, that we are paying attention to. And also, I should mention that Vestas have previously announced that we would consider, if it would make sense, to share the V164 development with other partners. And we have received inquiries from potential partners that we are evaluating to see whether or not this is a possible route forward or not.
We should also just highlight here that when we look at some of the activities that are going on within the offshore sector, we are, of course, finding worrying that we are seeing that, for instance, in some countries, it is a demand to have national production in order to compete with the tenders, which is another matter that we are paying deep attention to when looking ahead. Before turning to the Q&A session, I'd like to say a few words concerning the development of the market share in 2011. Three of the industrial analysts that cover the space have various definitions for how to calculate the market. But overall, there seems to be a good agreement that the market in 2011 ended around 40-41 GW, irrespective of which way you try to add the figures up.
However, where there was not the same agreement on was exactly how the various players came in in terms of their size of market share. But if you look at Vestas, then there was a common agreement that Vestas was between 12.7-12.9, and in all of the three agencies, the largest player in the sector, in the year 2011. If we go in and look at just one of them on the geographical split, we are seeing the benefit of Vestas global organization . As, apart from China, Vestas is in the top three in the nine out of ten major markets, not in China, where we were ranked number eight. And here, I would like to say that, when we look at the customer relationship that Vestas have in China, then they are very well and doing very strong.
Therefore, it was more by choice of Vestas because of the terms and conditions currently going on in the Chinese market that Vestas decided to slow down our activity level in China, but not related due to the fact of Vestas not having strong commercial relationship with our customers in China. In order to sort of try to summarize what I have just taken you through, let me start by saying that we do maintain the outlook for EBIT cash flow and revenue for the year 2012 as previously guided. No question, Q1 was disappointing in terms of revenues and earnings. We are continuing to align in the organization in order to get to our targets for 2012, but also preparing for 2013. We are having right now a very high activity level for the rest of the year.
As I said, unfortunately, we had to make an additional provision for the V90-3.0 MW machine of EUR 40 million, and we are deferring the prototype to 2014 on the V164-8.0 MW. I should also add, since this is the first time that we announced the value of our service backlog, we have, when you add service and turbines together, actually a backlog of more than EUR 14 billion of business that Vestas needs to execute going forward. Next time, we are going to give an update to the market is on the 22nd of August, which will also take place here in Aarhus. And at that time, it would not only be myself but also our new CFO, Dag Andresen, who is going to give the presentation. And with this, operator, I think we should turn to the Q&A session.
We have Faisal Ahmad.
Before turning to the Q&A session, I'd like to say a few words concerning the development of the market share in 2011. 3 of the industrial analysts cover the space have various definitions for how to calculate the market. But overall, there seems to be a good agreement that the market in 2011 ended around 40-41 GW, irrespective of which way you try to add the figures up. However, where there was not the same agreement on was exactly how the various players come in in terms of their size of market share. But if you look at Vestas, then there was a common agreement that Vestas was between 12.7-12.9, and in all of the 3 agencies, the largest player in the sector in the year 2011.
If we go in and look at just one of them on the geographical split, we are seeing the benefit of Vestas global organization . As apart from China, that Vestas is in the top three in nine out of ten major markets, not in China, where we were ranked number eight. And here, I would like to say that, when we look at the customer relationship that Vestas have in China, then they are very well and doing very strong. And therefore, it was more by choice of Vestas because of the terms and conditions currently going on in the Chinese market that Vestas decided to slow down our activity level in China, but not related due to the fact of Vestas not having strong commercial relationship with our customers in China.
In order to sort of try to summarize what I have just taken you through, let me start by saying that we do maintain the outlook for EBIT cash flow and revenue for the year 2012 as previously guided. No question, Q1 was disappointing in terms of revenues and earnings. We are continuing to align in the organization in order to get to our targets for 2012, but also preparing for 2013. We are having right now a very high activity level for the rest of the year. And as I said, unfortunately, we had to make an additional provision for the V90-3.0 MW machine of EUR 40 million, and we are deferring the prototype to 2014 on the V164-8.0 MW.
I should also add, as this is the first time that we announced the value of our service backlog, we have, when you add service and turbines together, actually a backlog of more than EUR 14 billion of business that Vestas needs to execute going forward. Next time, we are going to give an update to the market is on the 22nd of August, which will also take place here in Aarhus. And at that time, it would not only be myself but also our new CFO, Dag Andresen, who is going to give the presentation. And with this, operator, I think we should turn to the Q&A session.
We have Faisal Ahmad from Handelsbanken online with a question.
Yes, gentlemen. This is Faisal Ahmad from Handelsbanken Capital Markets. I have two questions.
Firstly, on the warranty provisions, you've discovered issues with approximately one-third of the fleet installed between 2009 and 2011. Could you just try and give us a feeling of when you discovered these irregularities and to what extent you have had the possibility, opportunity to test the remainder of the fleet installed during that period? And that's the first question.
Well, the problems have been seen here very lately. And the fact that you change something on the fleet is, of course, something that happens. But it started to become evident that this could actually be more than just some changes, and that's why we have started to investigate the matter. That is why we are now making these provisions as we are, of course, going in and monitoring the machines to try to establish what could be the main reason for this.
Okay.
Just to follow up on this question, so you have actually not had the opportunity to monitor or examine the remainder of the two-thirds of the fleet installed during this period. Is that what you're saying?
Based upon our assumption, then, the other two-thirds of the fleet, if our assumption for the reason is correct, should not be affected. And we are not seeing those other two-thirds having any performance problems.
Okay. The second question relates to guidance. Given the performance you've seen during Q1, does the upper end of the guidance range seem more difficult to reach now, given the provisions you've taken and now also deliveries which have disappointed you?
I would say, we are maintaining, we are maintaining the guidance, but it is, of course, clear that with the additional warranties that we are taking in and also some additional special items, it is, of course, putting some more pressure on us. But we still believe it's possible to get to the previous full-year guidance.
Okay. Thank you. That's all.
You're welcome.
Patrik Setterberg from Nordea is online with a question.
Yes. Patrik Setterberg from Nordea. A couple of questions. The first one is related to the development of the V164 turbine. You have reduced the pace of the development of the prototype. I suggest this would reduce the CapEx need for 2012. I'm just wondering why this is not the case.
Well, the concerning the actual components and construction, we are doing that now when you look at the tangible CapEx, both in the UK and here in Denmark.
Okay. You're writing a report as well that you have received some inquiries from potential partners. Could you please elaborate on this?
Not more than is already stated in the report.
But overall, could you remind me of what type of partner you're looking for?
A good one.
I would say that we have said and previously mentioned that the partners that we are looking for are, of course, some if they are interested, it would make sense both for them and for Vestas, because it's a very big project, and maybe it would make sense to share the risk with somebody else. And that is basically what we are taking in as the assumptions. But then who it could be and how it could be done, I don't want to speculate about, but just saying that we have received inquiries after we sort of said that we might or we will be willing to look at that to see whether it could make sense or not.
Okay. Then my last question is, you have increased the expected level of special items for 2012.
I'm just wondering if you have included any potential costs for the reduction that may take place in the USA.
No, the US is not impacting these special items.
Okay. Thank you very much.
Thank you.
Brian Gamble from Simmons & Company International is online with a question.
Ditlev Engel, just a follow-up on the V164 question. Could you maybe elaborate on the total cost development of the 164? I'm not sure if you've given that total number in the past. In regards to that, does the point that you mentioned, being that national production is often needed to win some of those offshore orders, does that highly impact who you would likely partner with?
We have not mentioned what the total amount is for the V164, but obviously mentioned that if you look at our total CapEx expectations here in 2012, then the V164 is an important part of the total CapEx. Concerning the localization, it is clear that we this is a huge investment that needs to be used across countries. Otherwise, you cannot get economies of scale. And therefore, it's of course worrying when we are seeing that in some markets, that it is a demand that it has to be produced there. And that is, of course, let's say, distorting the value chain.
An d then in the U.S., you mentioned a decision coming in Q3. A couple of things. When you say Q3, do you mean actually during calendar Q3 or on your Q3 call?
And then what are your expectations for, you know, any discussion of extension? And I would assume that, if there was discussion, it would possibly be delayed until after the election. Are you anticipating having to wait until that time to make a decision?
I would have to say, Brian, you are the American. I'm not, but I think both of us know that the projections for where this is going to go is very hard to determine. And we have just said that we need to take the decision in the Q3. We haven't said when in the Q3, but in the Q3, we have to take the decision.
Could you remind me of what type of partner you're looking for?
A good one.
I would say that we have said and previously mentioned that the partners that we are looking for are, of course, some, if they are interested, it would make sense both for them and for Vestas, because it's a very big project, and maybe it would make sense to share the risk with somebody else. And that is basically what we are taking in as the assumptions. But then who it could be and how it could be done, I don't want to speculate about, but just saying that we have received inquiries after we sort of said that we might or we will be willing to look at that to see whether it could make sense or not.
Okay. And then my last question is, you have increased the expected level of special items for 2012.
I'm just wondering if you have included any potential costs for the reduction that may take place in the USA.
No, the US is not impacting these special items.
Okay. Thank you very much.
Thank you.
Rupesh Madlani from Barclays Capital is online with a question.
Good morning, Rupesh Madlani from Barclays. A few questions from me, please. First, with the 376 gearboxes at risk, why is your EUR 40 million charge not too low? Second, do you see potential for further cost reduction beyond what you've currently announced?
Third, perhaps you could give an update on the V112 work and any potential risk to serial, any serial issue there. And then fourth, with respect to some of the issues relating to the gearbox for the V90, do you have any plans to change your gearbox suppliers going forward across your fleet? Thank you.
Okay. Concerning the V90, obviously, the EUR 40 million provision that we have put aside now is based upon the estimate that we have made. And now, these are Vestas assumptions. And obviously, we have to discuss more in detail with our supplier concerning the verification of these problems and whether they will develop to the level that we are anticipating or not. And that is something that we have to sit down with them.
At this stage, we don't have any, let's say, plans to do otherwise than working with the supplier and finding the solutions to these problems and get them rectified so our customers are not going to be impacted. But that, of course, also require a very good planning process in order to make sure it's done in the right way, in particular when we talk about the 36 standing offshore. Concerning the V112, I can only say that, apart from the very unfortunate fire that we had in Groß Eilstorf in Germany some weeks back, then we are seeing the V112 development moving very much in the right direction, which also includes the manufacturing of generators in our facilities in Germany.
And if you look into the total cost reduction, I said the figures that we are focusing on here now is obviously to make sure that we execute these 40% more in 2012, compared to 2000 and 2011. But of course, we at the same time having a very clear view on the year 2013. But if you look at what we're heading for now, as mentioned here today, that is what we're going for in 2012. But of course, we're also looking at initiatives in 2012, in order to ensure our level in 2013, whether or not we believe, of course, if it happens, it's self-explanatory, but at least in the Q3, we have to decide, do we believe that the PTC is going to be extended or not, and what potential impact is that going to have on our facilities in the U.S.
And that decision, we will take in the Q3, as mentioned this morning.
Thanks, Ditlev.
Rupesh Madlani from Barclays Capital is online with a question.
Good morning, Rupesh Madlani from Barclays. A few questions from me, please. First, with the 376 gearboxes at risk, why is your EUR 40 million charge not too low? Second, do you see potential for further cost reduction beyond what you've currently announced? Third, perhaps you could give an update on the V112 work and any potential risk to serial, any serial issue there. And then fourth, with respect to, with respect to some of the issues relating to the gearbox for the V90, do you have any plans to change your gearbox suppliers going forward across the, across your fleet? Thank you.
Okay.
Concerning the V90-3.0 MW, obviously, the EUR 40 million provision that we have put aside now is based upon the estimate that we have made. And now, these are Vestas assumptions. And obviously, we have to discuss more in detail with our supplier concerning the verification of these problems and whether they will develop to the level that we are anticipating or not. And that is something that we have to sit down with them. At this stage, we don't have any, let's say, plans to do otherwise than working with the supplier and finding the solutions to these problems and get them rectified so our customers are not going to be impacted.
But that, of course, also require a very good planning process in order to make sure it's done in the right way, in particular when we talk about the 36 standing offshore. Concerning the V112, I can only say that, apart from the very unfortunate fire that we had in Groß Eilstorf in Germany some weeks back, then we are seeing the V112 development moving very much in the right direction, which also includes the manufacturing of generators in our facilities in Germany. And if you look into the total cost reduction, I said the figures that we are focusing on here now is obviously to make sure that we execute these 40% more in 2012, compared to 2000 and 2011. But of course, we at the same time having a very clear view on the year 2013.
But if you look at what we're heading for now, as mentioned here today, that is what we're going for in 2012. But of course, we're also looking at initiatives in 2012, in order to ensure our level in 2013.
And any potential for further cost reduction from the fixed costs, the cost reduction previously announced, from the EUR 150 million? Any potential for incremental fixed cost reduction this year?
We are not, well, as I said, we are not expecting to see for 2012 the, let's say, something beyond the level that we have now communicated and also previously communicated. And I'm just reiterating. I think one also has to remember, as I said, that we have to execute 40% more this year compared to last year, and that needs to be taken into account.
But of course, the plan is to make sure that we get into 2013 at the lowest possible run rate, with the way that we are looking at 2013 at this moment.
Very good. Thank you.
Thank you.
Arnaud Brossard from Exane BNP Paribas is online with a question.
Hello, everyone. Thanks for taking my questions. On your EBIT guidance, it's still a very wide range, and you're maintaining it despite the what you called a disappointing Q1 and unexpected additional charges. Can you tell us when you expect to be able to narrow the guidance range? And can you also explain the differences, the main drivers for the differences between the top and the low end of your guidance range? And finally, can you explain us how you can maintain the guidance range despite the additional charges and the disappointing Q1? Thank you.
Okay.
I can't remember which slide number it was, but in one of the slides, you could see that we had sort of this half shape on shipments, and we then had the other ones on deliveries. And obviously, the handover of the deliveries, if we talk about the revenues and the earnings, are, of course, some that can fluctuate a lot, whether or not we get to, for instance, EUR 6.5 billion or the EUR 8 billion of revenue. Now, so when can we narrow that? I think that, as you can see, it's hard to say on this part of the guidance simply because of the uncertainty that there always is when the projects are actually being handed over to our customers.
When we look at the other parts of the guidance, as I mentioned, of course, as we are shipping the turbines, that is, of course, important, when we look at the guidance for the cash flow of getting things out of the door. So the shipments are, of course, important to follow when we look at that part of the guidance. Concerning what we can do in terms of additional in order to get there, it's clear that if it turns out, for instance, that some of these provisions that we are now making are not needed in the same way, it could be one area.
Then, of course, again, how good are we in taking cost out, on the platforms and how good are we in taking cost out of the organization, going forward, and our overall expenditure is, of course, other areas to support the earnings aspirations for this year.
Okay. Thank you. Does your top-line guidance depend on orders which you still expect to be awarded, or does it simply depend on customer decisions on timing of deliveries?
Well, I would say we don't give a number for that. But obviously, with the highest backlog, ever, of EUR 10 billion on turbines and EUR 4 billion of services, we obviously have a fairly good visibility here. But of course, when you come to the uncertainty of the revenue recognition, there can be a number of factors that we cannot influence.
If, for instance, the grid connections are not ready on a given project, then these matters are out of our hands whether or not they can actually be TOR'd and thereby taken in as revenue by the clients even though the project is maybe completed.
Okay. Thank you. Finally, can you just tell us who manufactured the bearings in the turbines that are affected?
I think it's not for us to comment on that. We relate to our supplier.
Okay. Thank you.
You're welcome.
Kasper Larsen from Danske Bank is online with a question.
Hey, yeah, good morning, gentlemen. Just a couple of questions. Firstly, on the progression of the cost out initiatives, again, on the production cost on the V112, you said around EUR 41 million you didn't manage to do last year, and that is something you're aiming to do this year.
Could you just give a little bit more detail in how far the progression of that is?
On the, on the cost out of the platforms?
Yes, please.
Yep. I would say that, now, of course, I have to say that, I'm not, I'm not an engineer. But, if I look at the, progress, that is being made, between our turbines organization and also our sourcing organization, I think people are, doing a very good job, in order to bring, the turbine back to design cost. But of course, it will take time, not least, in terms of earnings, and revenues when they're being handed over to implement these changes. So a lot of good initiatives are taking place, I think, but, but we have to say that it will take time before it ends in on the, on the P&L.
Okay.
So that would be more like maybe a Q3, Q4 issue?
It's just some of the examples that I showed. I mean, changing, for instance, and implementing a change, as mentioned here, like the crane gallery, is not just something that you just do overnight. You also have to make sure it's properly tested and verified before you implement it.
All right. In terms of the net debt development, of course, quite a hike in the quarter. Could you comment perhaps on your covenants, also on a quarterly basis, almost 4 times net debt EBITDA?
Well, we do not comment on the covenants. But it is correct, obviously, that the debt went up from Q4 to the end of Q1. But as I said, actually, Q1 against Q1, the net debt was reduced from EUR 1 billion to EUR 850 million.
Okay.
So it's we should not fear that you would be, you know, in danger of breaching covenants with your financiers?
Do not comment on the covenants.
All right. Regarding credit facilities and any potential for further cost reduction from the fixed costs, that the cost reduction previously announced from the EUR 150 million? Any potential for incremental fixed cost reduction this year?
We are not, well, as I said, we are not expecting to see for 2012 the, let's say, something beyond the level that we have now communicated and also previously communicated. And I'm just reiterating. I think one also has to remember, as I said, that we have to execute 40% more this year compared to last year, and that needs to be taken into account.
But of course, the plan is to make sure that we get into 2013 at the lowest possible run rate with the way that we are looking at 2013 at this moment.
Very good. Thank you.
Thank you.
Arnaud Brossard from Exane BNP Paribas is online with a question.
Hello, everyone. Thanks for taking my questions. On your EBIT guidance, it's still a very wide range, and you're maintaining it despite the what you called a disappointing Q1 and unexpected additional charges. Can you tell us when you expect to be able to narrow the guidance range? And can you also explain the differences, the main drivers for the differences between the top and the low end of your guidance range? And finally, can you explain us how you can maintain the guidance range despite the additional charges and the disappointing Q1? Thank you.
Okay.
I can't remember which slide number it was, but in one of the slides, you could see that we had sort of this half shape on shipments, and we then had the other ones on deliveries. And obviously, the handover of the deliveries, if we talk about the revenues and the earnings, are, of course, some that can fluctuate a lot, whether or not we get to, for instance, EUR 6.5 billion or EUR 8 billion of revenue. Now, so when can we narrow that? I think that, as you can see, it's hard to say on this part of the guidance simply because of the uncertainty that there always is when the projects are actually being handed over to our customers.
When we look at the other parts of the guidance, as I mentioned, of course, as we are shipping the turbines, that is, of course, important, when we look at the guidance for the cash flow of getting things out of the door. So the shipments are, of course, important to follow when we look at that part of the guidance. Concerning what we can do in terms of additional in order to get there, it's clear that if it turns out, for instance, that some of these provisions that we are now making are not needed in the same way, it could be one area. And then, of course, again, how good are we in taking cost out on the platforms and how good are we in taking cost out of the organization, going forward?
Our overall expenditure is, of course, other areas to support the earnings aspirations for this year.
Okay. Thank you. Does your top-line guidance depend, year now, so by year-end, you have EUR 1.3 billion of underwritten credit facilities. How has that developed, where does that stand now?
There are no changes to that.
All right. Thank you very much.
Thank you.
Hakon Levy from DNB Markets is online with a question.
Yes. Good morning, and thank you for taking my questions. I'd like to follow up, firstly on the covenant and debt level. I mean, 4x is relatively high for an industrial company. Are you currently able to draw down on your credit facilities with these metrics? And in what kind of scenario or, on financial metrics, would you not be able to use the credit facility anymore?
I have a second question afterwards. Well, as I said, we do not comment on the covenants, apart from what I just did before also to the previous caller. Okay. Then, question on the backlog. As I understand it, the significant bulk of the high-cost V112 and GridStreamer turbines will be delivered June 2012, and then it's consequently critical for you to cut costs during the year to achieve profits from these deliveries. And you're still delivering and announcing new orders on V112. I'm just wondering, is this still profitable for you, or are you changing the prices or terms for these new contracts compared to the ones being sold in, say, Q3 or Q4 last year?
It's clear that the V112 that we are producing today and sending out of the door are too expensive.
That is, of course, also what we're seeing in the guidance. If we look at the pricing level in the market, we do believe that the V112 is being sold at a competitive level. Obviously, we're doing what we can to try to get the best out of each deal. But the predominant problem we have on the V112 is the cost base for the machine, and our ability to take the cost out of the machine, which is really essential. And as I said, when we look at the work that is being done here, we do believe that we will manage to step by step get it back to the design cost.
Okay. Thank you.
Daniel Patterson from SEB is online with a question.
Yes, good morning, Ditlev. Daniel Patterson here from SEB Enskilda. Follow-up on the V112, question here on the Q1. Obviously, revenue is up quite a lot in Q1 year-over-year, but the gross margin is almost zero. But how big a problem is the V112 in this quarter? You know, I'm not necessarily looking for a number here, but we don't get any breakdown on which turbines you made or what's the gross margin on the V112. So I'm just trying to get a feeling for how big a problem the V112 issue is in the Q1 on earnings.
It's part of the problem. So, it's, I think as we also mentioned that we were entering dependent on orders which you still expect to be awarded, or does it simply depend on customer decisions on timing deliveries?
Well, I would say we don't give a number for that. But obviously, with the highest backlog ever of EUR 10 billion on turbines and EUR 4 billion of services, we obviously have a fairly good visibility here. But of course, when you come to the uncertainty of the revenue recognition, there can be a number of factors that we cannot influence. If, for instance, the grid connections are not ready on a given project, then these matters are outside our hand whether or not they can actually be TOR'd and thereby taken in as revenue by the clients even though the project is maybe completed. Okay. Thank you. Finally, can you just tell us who manufactured the bearings in the turbines that are affected? I think it's not for us to comment on that. We relate to our supplier. Okay. Thank you.
You're welcome. Kasper Larsen from Danske Bank is online with a question. Hey, yeah, good morning, gentlemen. Just a couple of questions. Firstly, on the progression of the cost-out initiatives, again, on the production cost on the V112, you said around EUR 41 million you didn't manage to do last year, and that is something you're aiming to do this year. Could you just give a little bit more detail in how far the progression of that is? On the, on the cost out of the platforms? Yes, please. Yep. I would say that, now, of course, I have to say that, I'm not an engineer. But, if I look at the progress that is being made, between our turbines organization and also our sourcing organization, I think people are doing a very good job, in order to bring the turbine back to design cost.
But of course, it will take time, not least, in terms of earnings, and revenues when they're being handed over to implement these changes. So a lot of good initiatives are taking place, I think, but we have to say that it will take time before it ends in on the, on the P&L. Okay. So that would be more like a maybe Q3, Q4 issue? It's just some of the examples that I showed. I mean, changing, for instance, and implementing a change, as mentioned here, like the crane gallery, is not just something that you just do overnight. You also have to make sure it's properly tested, and verified before you implement it. All right. In terms of the net debt development, of course, quite a hike in the quarter.
Could you comment perhaps on your covenants, also on a quarterly basis, almost four times net debt EBITDA? Well, we do not comment on the covenants. But it is correct, obviously, that the debt went up from Q4 to the end of Q1. But as I said, actually, Q1 against Q1, the net debt was reduced from EUR 1 billion to EUR 850 million. Okay. So it's we should not fear that you would be, you know, in danger of breaching a covenants with your financiers? Do not comment on the covenants. All right. Regarding credit facilities year now, so by year-end, you have EUR 1.3 billion of underwritten credit facilities. How has that developed, where does that stand now? There are no changes to that. All right. Thank you very much. Thank you.
Hakon Levy from DNB Markets is online with a question. Yes. Good morning, and thank you for taking my questions. I'd like to follow up, firstly on the covenant and debt level. I mean, four times is relatively high for an industrial company. Are you currently able to draw down on your credit facilities with these metrics? And in what kind of scenario or on financial metrics would you not be able to use the credit facility anymore? Then I have a second question afterwards. Well, as I said, we do not comment on the covenants, apart from what I just did before also to the previous caller. Okay. Then, question on the backlog.
As I understand it, the significant bulk of the high-cost V112 and GridStreamer turbines will be delivered June 2012, and then it's consequently critical for you to cut costs during the year to achieve profits from, from these deliveries. And you're still delivering, and announcing new orders on V112. I'm just wondering, is this still profitable for you, or are you changing the prices or terms for these new contracts compared to the ones being sold in, say, Q3 or Q4 last year? It's clear that the V112 that we are producing today and sending out of the door are too expensive. And that is, of course, also what we're seeing in the guidance. If we look at the pricing level in the market, we do believe that the V112 is being sold at a competitive level.
Obviously, we're doing what we can to try to get the best out of each deal. But the predominant problem we have on the V112 is the cost base for the machine, and our ability to take the cost out of the machine, which is really essential. And as I said, when we look at the work that is being done here, we do believe that we will manage to step by step get it back to the design cost. Okay. Thank you. Daniel Patterson from SEB is online with a question. Yes, good morning, Ditlev Engel. Daniel Patterson here from SEB Enskilda. Follow-up on the V112, question here on the Q1. Obviously, revenue is up quite a lot in Q1 year-over-year, but the gross margin is almost zero.
But how big a problem is the V112 in this quarter? You know, I'm not necessarily looking for a number here, but we don't get any breakdown on which turbines you made or what's the gross margin on the V112. So I'm just trying to get a feeling for how big a problem is the V112 issue in the Q1, on earnings. It's part of the problem. So, it's, I think, as we also mentioned, that we were entering 2012 with some very expensive machines. And they are, of course, also kicking in here in the Q1 as being part of the problem. Is it a fair assumption that, you know, what it is you're doing on cost out probably hasn't helped you at all yet in the Q1? Yep. Fair enough. The second question is on competition.
Since the last conference call, as far as I'm aware, the two first Chinese-made turbines, Sinovel turbines, are now up and running in Tjörn in Sweden. And I guess these are the first Chinese-made turbines really being put into service in a, let's say, a high-regulatory European market. What are you seeing on the competitive side? Are the Chinese trying to be even more aggressive in Europe? If yes, what are you doing to combat it, and how are you seeing the competitive situation in Europe? Well, I think the competitive situation, as I mentioned, also in Europe is for sure very tough from all vendors, irrespective of nationality.
But if I look across the business that we are competing with, of course, we come into to also some Chinese, but predominantly, it is our—let's say here in Europe, it is our normal, if I can use that word, competitors in the European market that we are faced with. So it's we haven't seen that many, at least so far, from China. But of course, a few. Okay. Thank you. You're welcome. Claus Almer from Carnegie is online with a question. Yeah. Hi. Just a question about the provision of the EUR 40 million. Does that number take into account that you may be compensated by the supplier of the gearbox and the bearing?
The EUR 40 million is the assessment that we have made now that we think that we could end up paying as we're looking at it now. But we will have to sit down and discuss this with our supplier. And of course, until we have a deal on these matters, then we have to make the provision we believe that Vestas will have to pay or could end up paying without having a deal back-to-back . Should you also understand so you have let's just assume the total cost will be EUR 60 million, and you will take the EUR 40 million, and the suppliers will take EUR 20 million. So the total cost will be above the EUR 40 million, right? That could be. And there can be I don't wanna speculate on about how it could end up.
But of course, it could be that it's done in certain ways. But we just have to, when we don't have an agreement, make up what we believe we will have to – could end up paying if, ours, let's say, if our view on what the root cause is is correct. Sorry, just to be 100% clear. So the EUR 40 million is 100% your best guess of the cost associated to these problems? We have to say that we do not have – we don't have – a final conclusion on the matter. We just have to from our service centers, when we are overviewing this, say, "This could probably be the problem." And therefore, if that is the problem, we estimate that that could bring the V112 back to the design cost?
And then I think, obviously, the right issue then to say is then, then obviously, also, we do expect to have a different earnings level on that platform than what we have right now. Okay. Thank you. Michael Lefebvre from HSBC is online with a question. Yes. Good morning. I had two questions. The first on China. You mentioned you slowed down your involvement due to market conditions there. What would you need to change in China before you push again back into this market? I have another question after. Well, we are evaluating the respective deals. And as I said, actually, when we look at it, at Vestas, our sales business unit in China had a very strong progress on its customer relationship as we are measuring it in 2011. So we know we have very strong relationship to our Chinese clients.
So it is more a question of that we will see a pricing level, in terms and condition in the market at a level, that we feel is satisfactory. And we have just said that with some of the pricing that some of our colleagues are offering in the business at the moment in China is simply not a level that Vestas will undertake. So we will have to see that we get to a pricing level of a different nature that some people are offering at this moment. Thanks. My second question is on the V164. I'm not sure why you've pushed back the prototype if you're actually spending the CapEx. I mean, does this imply that you're confident you will not receive orders in 2013? And also, would you push ahead with the prototype even without a partner?
The prototype is still what we are looking at to do. The question, of course, getting orders is another matter to put it into serial production. But when we look at the components and the things that we are developing here, it has to be said that one thing is to do the actual assembly of the prototype. Another thing is to do a lot of serial parts that you have to do anyway before you get to the final machine. So could you confirm that you'd still go ahead with the prototype even without a partner? Yeah. But, but in 2014. Okay. Thank you. Sabyasachi Chatterjee from Morgan Stanley is online with a question. Hi. This is Sabi from Morgan Stanley. I have three questions for you. The first one is on the level of customer prepayments.
If I'm understanding correctly, this is one of the major drivers of your working capital. I mean, given if 2013 is a, it's a tough year for the wind industry, how do you expect this customer prepayment level to be at the, say, end of 2012 or maybe Q3 or Q4 in 2012? The second one is on the revolving credit facility. If I look in your cash flow statement, there is an item of EUR 242 million under raising of non-current liabilities. So can I assume that you drew down around EUR 242 million out of the RCF? And thirdly, I know it's it'll be very difficult to get a comment from you, but there have been a few rumors floating in the market that a few Chinese players like Sinovel or Goldwind may be interested in acquiring Vestas.
It, I mean, you can't comment on this, I know, but, I mean, going forward or in a long-run perspective, do you think some sort of strategic partnership may make sense, since they are getting a bit more aggressive in Europe so just to save your market share or just to protect yourself, strategic partnership or anything like that? Thanks. Let me start in reverse. Correct. I have no comments to the rumors concerning the situation that we are looking at at Vestas. I think it's important, as I said, to mention that we do have a backlog of orders of around EUR 14 billion at this moment despite the tough market. So, it's very much down to our execution capabilities as an organization as well as taking the cost out, as was previously discussed on some of the other questions, being it organization or turbines.
Concerning the prepayment level, then, we have yes, you're right. It's a very competitive market. But if you look overall, we haven't seen any, let's say, material changes on this matter, when you look into to the projects that are of interest. But it is clear that is as you say, it is an important part of the overall development for Vestas, but we haven't seen any material changes here in the Q1. And actually, if you look at our net working capital, then, prepayments, which obviously also entails shipments, are an important part of improving the net working capital. And then you had a question, sorry, on, I'm not so sure if I got that question on the some credit facilities or what was it? Yeah.
I mean, if you look on the cash flow statement, you have around, under just below free cash flow, you have raising of non-current liabilities around EUR 242. So can I assume that this 242 is coming from that RCF? Yeah. I believe so. Yeah. Okay. Okay. And you don't expect in terms of the prepayment levels, just to be clear, I mean, you expect similar prepayment level to prevail till year-end? I can only give you our best estimate today, but we haven't seen, as I said, any material changes. Okay. Thank you. Thank you. Jacob Pedersen from Sydbank is online with a question. Yeah. Hi. I just have a single question. I didn't hear the first part of your webcast. Sorry.
So if it's been asked already or you've explained on it, I'm sorry for wasting all your time. But why do you have the low level of deliveries in the Q1? Is this related to internal problems at Vestas, or is it more customer-related problems? Could you expand a bit on that? I would say there are simply some projects that was forecast to be handed over. And some of it we were not at the level that we had anticipated we should be. And some of it was also some of our customers not being at the level, so it was not possible to hand them over. So I would say it was a combination.
But the fact is that we had anticipated more to be delivered in the Q1 of 2012 compared to what we're looking at now. Okay. Okay. Then a follow-up because it seems like you have yourself some quite big execution problems even in a quarter with very low or somewhat low activity. What does that tell you about the coming quarters? Do you have any reassurance for investors that delivery problems will not continue? Well, I think we have to. To be frank, I don't think we have an execution problem. We have actually delivered 28% more in this quarter compared to the same quarter last year.
The fact that only 4% filters in on the revenue is also due to the fact that some EPC projects, part of that, was taking in 2011. So we have actually handed over 28% more in Q1 this year compared to Q1 last year. Concerning going forward, I think I mentioned on one of the slides that, of course, the megawatt under construction is important to be aware of how we believe this could actually impact the revenues going forward. And as we are going to ship 40% more this year, then obviously our ability to turn these out of the door fast around and get them handed over is one of the reasons why we have this delta on the guidance between 6.5 and 8. Okay. Okay.
I'm still not quite sure I understand why you have a lower level of deliveries than you actually expected. So if you could put just a few more comments on it, I'd really like it. Well, on the low level of deliveries, as I said, is a combination of projects that were not handed over that we anticipated would be handed over, and also some of our customers not being ready for it so it could actually be TOR. But despite that, actually, the TOR was up with 28%. So the deliveries were actually quite a lot up, compared to Q1.
I think the big problem is, or maybe the reason also for your question is how come that only this turned into 4% of revenue, even though we are handing such, percentage-wise, so much over? And the reason for that is that part of those revenues were actually already taken in as they were EPC contracts from previously. Yeah. But you state yourself that you're disappointed with. Yeah. with. We thought that we were yeah. Well, since we are going to do 40% more than you can say everything equal, we have actually shipped 47% more. So we could also hope for that; actually, we would have an even higher level of deliveries than the 28 that we actually did. Okay. Thanks a lot. You're welcome. Klaus Kehl from Nykredit Markets is online with a question. Yes. Hello.
Klaus Kehl from Nykredit Markets. A question related to the average sales prices here. Bring the V112 back to the design cost. And then I think, obviously, the right issue then to say is, then obviously, also, we do expect to have a different earnings level on that platform than what we have right now. Okay. Thank you. Michael Lefebvre from HSBC is online with a question. Yes. Good morning. I had two questions. The first on China. You mentioned you slowed down your involvement due to market conditions there. What would you need to change in China before you push again back into this market? I have another question after. Well, we are evaluating the respective deals.
And as I said, actually, when we look at it at Vestas, our sales business unit in China had a very strong progress on its customer relationship as we are measuring it in 2011. So we know we have very strong relationship to our Chinese clients. So it is more a question of that we will see a pricing level, in terms and condition in the market at a level, that we feel is satisfactory. And we have just said that with some of the pricing that some of our colleagues are offering in the business at the moment in China is simply not a level that Vestas will undertake. So we will have to see that we get to a pricing level of a different nature that some people are offering at this moment. Thanks. My second question is on the V164.
I'm not sure why you've pushed back the prototype if you're actually spending the CapEx. I mean, does this imply that you're confident you will not receive orders in 2013? And also, would you push ahead with the prototype even without a partner? The prototype is still what we are looking at to do. The question, of course, getting orders is another matter to put it into serial production. But when we look at the components and the things that we are developing here for it, it has to be said that one thing is to do the actual assembly of the prototype. Another thing is to do a lot of serial parts that you have to do anyway before you get to the final machine.
So could you confirm that you'd still go ahead with the prototype even without a partner? Yeah. But in 2014. Okay. Thank you. Sabyasachi Chatterjee from Morgan Stanley is online with a question. Hi. This is Sabyasachi from Morgan Stanley. I have three questions for you. The first one is on the level of customer prepayments. If I'm understanding correctly, this is one of the major driver of your working capital. I mean, given if 2013 is a it's a tough year for the wind industry, how do you expect this customer prepayment level to be at the, say, end of 2012 or maybe Q3 or Q4 in 2012? The second one is on the revolving credit facility. If I look in your cash flow statement, there is an item of EUR 242 million under raising of non-current liabilities. So can I assume that you, Q1.
If I look at the average sales prices in the P&L, they seem very, very low. In fact, they are around EUR 0.8 compared to EUR 1.03 last or Q1 2011. Could you elaborate on that, on the prices? And is that mainly due to the turnkey projects or what is going on here on the average sales prices? That's my first question. Yeah. I think you gave part of the answer yourself. And then also, there were projects that members of SBU also delivered in Asia-Pacific, which also are having some impact on that. And again, a reason why we can see these fluctuations quarter by quarter. Okay. But it's an all-time low for Vestas. Is that correct? That, I don't know. But it is low. Okay. Okay. Mm-hmm.
Secondly, could you comment on the level for these extraordinary high manufacturing costs for the V112 maybe for 2012? And it's in order to get a feeling for the delta we could see here in 2013. Could you try to give us some flavor on that? And secondly, is there any risk that this problem could also have a negative impact on 2013 earnings? It's clear that without discussing anything on '13, I would say, of course, our ability and of course, we'll come back when we during this year have more, let's say, delta or more sort of how to look in this versus '13. But it is clear our ability to drive this down and as fast as possible is absolutely essential. It is a little late compared to 2012.
But with the speed that these things are being implemented in 2012 are absolutely essential for how we're going to look at the earnings level for these machines when they're going to be manufactured in 2012. And as you can see in the shipment that we have, which is basically quite similar to production, then as the production is very heavily now there it would actually, from that point of view, have been better to have the production being back-end loaded here in 2012 instead of much more front-loaded compared to the past, because then even the cost-out initiatives, it will, you know, will not be able to be implemented at right now, but only later on. And therefore, we do hope to see that improvement versus when we get to 2013. But we will come with some more specific data on that later on.
Okay. But in other words, there is a risk that this could affect 2013 as well. I guess that's. It's clear. The risk is, of course, there. And that is why it's so important for the work that is going on now, especially when we look beyond 2012. Okay. Thank you very much. Thank you. Archie Fraser from Redburn Partners is online with a question. Good morning. Just a couple of questions. Firstly, coming back, I'm afraid, once more to the industrialization issues to do with V112 and GridStreamer. Down around EUR 242 million out of the RCF. And thirdly, I know it'll be very difficult to get a comment from you, but there have been a few rumors floating in the market that a few Chinese players like Sinovel or Goldwind may be interested in acquiring Vestas.
It I mean, you can't comment on this, I know, but, I mean, going forward or in a long-run perspective, do you think some sort of strategic partnership may make sense, since they are getting a bit more aggressive in Europe so just to save your market share or just to protect yourself, strategic partnership, anything like that? Thanks. Let me start in reverse. Correct. I have no comments to the rumors. Concerning the situation that we are looking at at Vestas, I think it's important, as I said, to mention that we do have a backlog of orders of around EUR 14 billion at this moment despite the tough market. So, it's very much down to our execution capabilities as an organization as well as taking the cost out, as was previously discussed on some of the other questions, being it organization or turbines.
Concerning the prepayment level, then, we have yes, you're right. It's a very competitive market. But if you look overall, we haven't seen any, let's say, material changes on this matter, when you look into to the projects that are of interest. But it is clear that is, as you say, it is an important part of the overall development for Vestas, but we haven't seen any material changes here in the Q1. And actually, if you look at our net working capital, then prepayments, which obviously also entails shipments, are an important part of improving the net working capital. And then you had a question, sorry, on, I'm not so sure if I got that question on the some credit facilities or what was it? Yeah.
I mean, if you look on the cash flow statement, you have around, under, just below, in free cash flow, you have raising of non-current liabilities around EUR 242. So can I assume that this 242 is coming from that, RCF? Yeah. I believe so. Yeah. Okay. Okay. And you don't expect, in terms of the prepayment levels, just to be clear, I mean, you expect similar prepayment level to prevail till year-end? I can only give you, our best estimate today, but we haven't seen, as I said, any material changes. Okay. Thank you. Thank you. Jacob Pedersen from Sydbank is online with a question. Yeah. Hi. I just have a single question. I didn't hear the first part of your webcast. Sorry.
So if it's been asked already or you've explained on it, I'm sorry for wasting all your time. But why do you have the low level of deliveries in the Q1? Is this related to internal problems at Vestas, or is it more customer-related problems? Could you expand a bit on that? I would say there are simply some projects that was forecast to be handed over, and some of it. Can you give us any further color on the quantum of the impact? If you were to bring the production costs of these technologies back to the design level, which you say is your target, can you give us any feel for what sort of impact this might have on the EBIT?
And also, how might that tie in with your medium-term target of achieving a high single-digit EBIT margin? That's my first question. My second question relates to slide 25 of the presentation. On the right-hand chart there, you've given some details of net debt and net debt to EBITDA. The final bar in the chart indicates an end-2012 expectation. Should we assume that bar relates only to the left-hand Y-axis? In other words, it indicates the likely quantum of year-end net debt at maybe EUR 500 million. And should we assume that it doesn't relate to the right-hand Y-axis, which gives the net debt to EBITDA multiple?
To start with that blue bar, basically is just to show that we, since we expect a positive free cash flow, then we do expect that the net debt would be at this level. So that would be the left-hand side. And not the right? Yep. Okay. And then your other question concerning the V112, the design level, as I said, we have not disclosed, and we're not gonna do that today. But obviously, as we later on, we will try to show some more of what is it exactly the delta level that we are looking at going forward. But when we look at the previous mentioning of a high-end single digit, that also entailed a normalized US market. And presumably normalized industrialization costs on V112 and GridStreamer? Of course, it should be back to design costs. Yeah. Okay. Thank you. You're welcome.
Mark Freshney from Credit Suisse is online with a question. Morning. Thanks for taking my question. I just have one question on the strategy and the new management team. Clearly, you've got a new chairman and deputy chairman just started, a new finance director's coming in, and there'll be two new roles on the board. Can I ask whether there's any intention to do a, if you like, a wide-ranging strategic review of the whole business, where Vestas operates, etc., etc., later in the year once you have these new management team members? Thank you. Let me just, let me just say that, what we have all our focus on now, and also, very much in agreement, with the new, chairmanship is, to make sure that the plans that we have to undertake, in 2012, are, going according to, what has previously been mentioned. And.
We were not at the level that we had anticipated we should be. And some of it was also some of our customers not being at the level, so it was not possible to hand them over. So I would say it was a combination. But the fact is that we had anticipated more to be delivered in the Q1 2012 compared to what we're looking at now. Okay. Okay. Then a follow-up because it seems that, like, you have yourself some quite big execution problems even in a quarter with very low or somewhat low activity. What does that tell you about the coming quarters? Do you have any reassurance for investors that delivery problems will not continue?
Well, I think we have to. To be frank, I don't think we have an execution problem. We have actually delivered 28% more in this quarter compared to the same quarter last year. The fact that only 4% filters in on the revenue is also due to the fact that some EPC projects, part of that, were taken in 2011. So we have actually handed over 28% more in Q1 this year compared to Q1 last year. Concerning going forward, I think I mentioned on one of the slides that, of course, the MW under construction is important to be aware of, how we believe this could actually impact the revenues going forward.
And as we are shipping, going to ship 40% more this year, then obviously, our ability to turn these out of the door fast around, and get them handed over is one of the reasons why we have this delta on the guidance between 6.5 and 8. Okay. Okay. I'm still not quite sure I understand why you have a lower level of deliveries than you actually expected. So if you could put just a few more comments on it, I'd really like it. Well, on the low level of deliveries, as I said, is a combination of projects that were not handed over, that we anticipated would be handed over, and also some of our customers not being ready for it, so it could actually be TOR.
But despite that, actually, the TOR was up with 28%. So the deliveries were actually quite a lot up, compared to Q1. I think the big problem is, or maybe the reason also for your question is how come that only this turned into 4% of revenue, even though we are handing such, percentage-wise, so much over. And the reason for that is that part of those revenues were actually already taken in as they were EPC contracts, from previously. Yeah. But, but, but you but you state yourself that, that you're disappointed with, yeah. With. We thought that we were, yeah. But since we are going to do 40% more than you can say everything equal, we have actually shipped 47% more. So we could also hope for that, actually, we would have an even higher level of deliveries than the 28 that we actually did.
Okay. Thanks a lot. You're welcome. Klaus Kehl from Nykredit Markets is online with a question. Yes. Hello. Klaus Kehl from Nykredit Markets. A question related to the average sales prices here in Q1. If I look at the average sales prices in the P&L, they seem very, very low. In fact, they are around EUR 0.8 compared to EUR 1.03 last, or Q1 2011. Could you elaborate on that, on the prices? And is that mainly due to the turnkey projects or what is going on here on the average sales prices? That's my first question. Yeah. I think you gave part of the answer yourself. And then also, there were projects that members of SBU also delivered in Asia-Pacific, which also are having some impact on that.
And again, a reason why for where we can see these fluctuations quarter by quarter. Okay. But it's an all-time low for Vestas. Is that correct? That, I don't know. But it is low. Okay. Okay. Mm-hmm. Secondly, could you comment on the level for these extraordinary high manufacturing costs for the V112, maybe for 2012? And it's in order to get a feeling for the delta we could see here in 2013. Could you try to give us some flavor on that? And secondly, is there any risk that this problem could also have a negative impact on 2013 earnings?
It's clear that without discussing anything on 2013, I would say, of course, our ability and of course, we'll come back when we during this year have more, let's say, delta or more sort of how to look in this versus 2013. But it is clear our ability to drive this down and as fast as possible is absolutely essential. It is a little late, compared to 2012. But with the speed that these things are being implemented in 2012 are absolutely essential for how we're going to look at the earnings level for these machines when they're going to be manufactured in 2012.
As you can see in the shipment that we have, which is basically quite similar to production, then as the production is very heavily now, there it would actually, from that point of view, have been better to have the production being back-end loaded here in 2012 instead of much more front-loaded compared to the past, because then even the cost-out initiatives, it will you know, they will not be able to be implemented at right now, but only later on. And therefore, we do hope to see that improvement versus when we get to 2013. But we will come with some more specific data on that later on. Okay. But in other words, there is a risk that this could affect 2013 as well. I guess that's. It's clear. The risk is, of course, there.
And that is why it's so important for the work that is going on now, especially when we look beyond 2012. Okay. Thank you very much. Thank you. Archie Fraser from Redburn Partners is online with a question. Good morning. Just a couple of questions. Firstly, coming back, I'm afraid, once more to the industrialization issues to do with V112 and GridStreamer. Also at the same time having a very clear view on how we ensure that Vestas is well-positioning to handle the year 2013. And that is the focus that we have now with the chairmanship. And that is what we are focusing on. So, for the rest, I cannot comment at this stage.
But the only thing I can say is that that is, where all our focus and agreement are, now with the new, members of the board and the rest of the board, by the way. Okay. Thank you. Martin Prozesky from Bernstein is online with a question. Good morning, everyone. A few questions, please. The first is just on the cost-cutting measures. Just, for clarification, is this now fully provisioned for and, what is the expected cash outflow from the restructuring in 2012? And is that included in the free cash flow guidance? Yep. The second is on the margin in the quarter. Given that you had a record level of service, which I assume is at around a 10% margin, it would imply that product in the quarter was at a loss of 25%, the EUR 800 million or the EUR 900 million odd of product.
Is that reasonable, or was there kind of a weakening of service margin as well? You know, and what does that imply for the profitability of the remainder of the backlog? You know, and, and can the cost cuts that you're going to do offset this, that the backlog is, you know, is valuable, going forward? Then, third question just on inventories. I understand that you said you were ramping up for shipments in and deliveries into the remainder of the year. But it was up by quite a large number. I think it was EUR 470 million. Is this mostly components, or is there a lot of, final product inventory in there as well? And then just the final question, the fourth question on, again, on the, the flow and the recognition, of deliveries. You pushed out EUR 1.2 billion out of 2011. And again, deliveries was slow here.
How good is internal visibility on the delivery profile? And you know, can you guide more accurately on that because that is now the single biggest determinant of what your financials look like? Yep. Let me see if I remember all of them. The first question was on the cash flow and whether that's part. Yes. That's the case. Concerning the earnings level you asked concerning, we haven't seen any, let's say, apart from what is already guided on the full-year on services, any major changes in terms of that. And still maintain the full-year guidance for the service part of the earnings, also in percentage.
Concerning the stock level, yes, the big ramp-up that we are seeing now is very much related to the very big amount of business that we have to execute here in the coming quarters. And then, finally, more visibility on revenues on deliveries. You can at least say that you have the megawatt under completion, which is at least one parameter of sort of saying what is the activity level that we are running at. But of course, even we have a megawatt under completion, whether or not they're handing over to the clients and whether or not Vestas can influence that or not, of course, are sometimes also very difficult for us to predict. And the reason why the guidance for the full year is with such a big delta between EUR 6.5 billion and EUR 8 billion.
I think we showed on, or I know we showed on one of the slides that you could show the development of shipments and also development of deliveries, meaning, again, obviously, getting those over the line is essential. Here, I would say I do expect that, for instance, the fact with the expiration of the PTC, is a good driver for everybody, both us and our customers, to make sure that, for instance, in the U.S., which, of course, an important part of this, that they're actually being delivered in order to make sure that they're in compliance with the PTC. I guess just two clarifications. On the cash outflow for the restructuring, what is the amount that is included in the guidance? And on the inventories, is most of that inventory's components, or is there finished goods in that as well?
It's major for the last pattern, it's most of the components. But of course, there are also some turbines as they're being processed or being shipped out of the plants now. But we are sourcing, obviously, quite a lot, at this moment. And for the cash outflow, I can't recall but only say that we have estimated that the cash outflow basically relates to what is mentioned on the special items. Okay. Thank you. You're welcome. Janne Vincent Kjaer from Jyske Bank is online with a question. Yes. Good morning, gentlemen. Most of my questions have already been answered. But could you maybe comment a little more on the cost reductions on the V112 platform? When do you expect to have fully implemented the cost-out initiatives, related to the design costs on the V112? Will that be towards the end of the year?
I mean, you're quite busy in production here mid-year. We haven't given a timeline. I guess that we, of course, will keep on looking at how to optimize it. But in order for us to have any effect on it, that is one of the deltas that we are now working on. So I think it would not be prudent to say more than what I have already said. But, of course, the faster we can get it in, the better. But we will later on shed some more light on how we see this is trending for the overall implementation. But is it fair to assume that it will be difficult to have an effect on the P&L in 2012? It's clear.
I mean, as I said, if you look at the shipment level we have now, these turbines are, of course, still being manufactured at a too high level. So, of course, it will take time before it has an impact looking at 2012. Good. Thank you very much. You're welcome. Kasper Larsen from Danske Bank is online with a question. Yes. Just a follow-up question. In terms of turnkey EPC projects in the mix, can you just elaborate a little bit about how much is left? I.e., would we see an impact on the gross margin going forward in Q2, Q3 as well as we've seen in the last couple of quarters? I simply, to be frank, I cannot recall off my head how much of this that we have now are EPC-related. But still, a big chunk of it is supply-only and supply-and-install. All right.
Thank you very much. You're welcome. Okay. Operator. We have no further questions from the phone. Thank you. Okay. So, thank you for everybody for tuning in today. And especially thank you to all of my colleagues. And we'll be back with the half-year result on the 22nd of August. Thank you. The activity level that we are running at, but of course, even we have a megawatt under completion, whether or not they're handing over to the clients and whether or not Vestas can influence that or not, of course, are sometimes also very difficult for us to predict. And the reason why the guidance for the full year is with such a big delta between EUR 6.5 billion and EUR 8 billion.
I think we showed on, or I know we showed on one of the slides that you could show the development of shipments and also development of deliveries, meaning, again, obviously, getting those over the line is essential. Here, I would say I do expect that, for instance, the fact with the expiration of the PTC, is a good driver for everybody, both us and our customers, to make sure that, for instance, in the US, which, of course, an important part of this, that they're actually being delivered in order to make sure that they're in compliance with the PTC. I guess just two clarifications. On the cash outflow for the restructuring, what is the amount that is included in the guidance? On the inventories, is most of that inventory's components, or is there finished goods in that as well?
It's major for the last pattern. It's most of the components. But of course, there are also some turbines as they're being processed or being shipped out of the plants now. But we are sourcing, obviously, quite a lot at this moment. And for the cash outflow, I can't recall but only say that we have estimated that the cash outflow basically relates to what is mentioned on the special items. Okay. Thank you. You're welcome. Janne Vincent Kjaer from Jyske Bank is online with a question. Yes. Good morning, gentlemen. Most of my questions have already been answered. But could you maybe comment a little more on the cost reductions on the V112 platform? When do you expect to have fully implemented the cost-out initiatives related to the design costs on the V112? Will that be towards the end of the year?
I mean, you're quite busy in production here mid-year. We haven't given a timeline. I guess that we, of course, will keep on looking at how to optimize it. But in order for us to have any effect on it, that is one of the deltas that we are now working on. So I think it would not be prudent to say more than what I have already said. But of course, the faster we can get it in, the better. But we will later on shed some more light on how we see this is trending for the overall implementation. But is it fair to assume that it will be difficult to have an effect on the P&L in 2012? It's clear.
I mean, as I said, if you look at the shipment level we have now, these turbines are, of course, still being manufactured at a too high level. So, of course, it will take time before it has an impact looking at 2012. Good. Thank you very much. You're welcome. Kasper Larsen from Danske Bank is online with a question. Yes. Just a follow-up question. In terms of turnkey EPC projects in the mix, can you just elaborate a little bit about how much is left? I.e., would we see an impact on the gross margin going forward in Q2, Q3 as well, as we've seen in the last couple of quarters? I simply, to be frank, cannot recall off my head how much of this that we have now are EPC-related. But still, a big chunk of it is supply-only and supply-and-install. All right.
Thank you very much. You're welcome. Okay. Operator. We have no further questions from the phone. Thank you. Okay. So, thank you for everybody for tuning in today. And especially thank you to all of my colleagues. And we'll be back with the half-year result on the 22nd of August. Thank you.