Afternoon and welcome to this presentation for Vestas Wind Systems here in our new facilities in Aarhus, Denmark. Special welcome to press and analysts in the room, and everybody else who have decided to join us today for this presentation. Normally at this time I also bid welcome to all of my Vestas colleagues, but we have just had a special presentation for them over the last 1.5 hour. So, this time it will be press and analysts and others watching on the web today. The presentation that we have to go through is, of course, both the third quarter results for 2011, but also on the years to come. If we start to look at the agenda that we have compiled today, then we have seven points as you can see.
Unlike, normally, then it's not just gonna be me who's gonna do the presentation today. My colleague, Henrik Nørremark, our CFO, will also take you through part of the presentation, both related to the nine-month results and to the guidance. But we've also taken this opportunity to spend a little more time on going behind some of the details and the understanding of how the actual accounting practices work at Vestas, and also the mechanics behind this. So these are some of the other topics we're gonna get through. And when Henrik is done with all that, I will come back and talk a little more about the future of Vestas, how we see the years 2012 and 2013, our financial priorities and goals. And then we'll open up for the Q&A, both here in the room, but of course, everybody else calling in over the phone.
With this in mind, let's get started. The first thing is that we have this morning announced that we are canceling our aspiration for Triple15. Why have we done that? Well, we actually do believe that with the world that we're looking into at the moment, it doesn't make sense to talk about the possibilities of generating revenues of EUR 15 billion from now. I think it's important also to be aware of that we are not saying that we do not believe that there are fundamental, very exciting growth opportunities for the wind sector. That, in our opinion, is still very much in place, and these are the things that I'm going to talk about a little later on.
But before we do that, it is maybe a good idea to go back and just drill a few seconds on where did the Triple15 aspiration actually come from, and when were they set out? There is no doubt that what is most important for us now is how to improve our profits and securing our cash flow with the world that we have around us. And as I said, when we have made this distinctive choice, it also means that we have to look at, we believe, two tough years, 2012 and 2013, because of the macro environment. But as I said, even though we have canceled Triple15, it is not because we have canceled the growth aspirations. Two years ago, we were looking into a different world than the one that we have now when we launched our Triple15 aspirations.
Just to try to make a small recap on what was it actually that we were looking at. If we start to turn to the U.S., we were looking at a market that was fueled by a new ITC program, Production Tax Credit , and a lot of talk about a renewable portfolio standard, and even a federal renewable energy standard was in the making. Very exciting for, at that time, one of the largest world's one of the largest wind markets in the world. Secondly, we just had the 2020 targets installed in the EU with a number of aspirations for all the member countries on how to further both greening and growing their economy throughout the entire EU. And if we look into Asia, the Chinese market was growing rapidly. We were seeing, and Australia talking about 20% in 2020 in their goals as well.
New plans in Japan, and also in a country like India. What is the reality that we are faced at the moment with the way that the world is looking? There is a huge uncertainty in the United States whether or not the PTC will be extended, after 2012. And we know, being in the wind sector, that if the PTC does not get extended, that is normally quite a tough challenge within the industry. And we have not seen any hopes for a new federal renewable energy standard. Thusly, we need to embrace and be ready for Vestas to see a North American market that could, in 2013, turn out to be quite challenging. The paradox is, and maybe in our sector, that 2012 looks to be quite a busy year in terms of installing and executing, and I will come back and talk about this later on.
But the likelihood that maybe the North American market can fall dramatically going into 2013 is something that we already now have to prepare ourselves for in case this should happen. Good things can also happen, but we need to be ready to with the fact that it may not happen. The sovereign crisis in Europe I don't need to go more in detail with that, but we all know that this has created tremendous challenges. Just as an example, for instance, the market in Spain, which just a few years ago was one of the largest wind markets in Europe, is now at a standstill, and we do not believe that this is going to change in the next few years. In Asia, we are seeing an intense competition and also challenging environment.
Yeah, even the Chinese market, which was growing rapidly over the last few years, have, in 2011, turned out to be also quite challenging. It doesn't remove the fact that there are other areas where there are new opportunities, but some of the major markets are here, in our opinion, having a tough time. And of course, we need to make sure that we, treat this in the right manner at Vestas. Another way to look at the Triple15 aspirations would actually be to say that if you look at the market projections in 2009 and where they were supposed to be in 2015, it would actually mean that if Vestas could grow with the market and keep growing our service business as we've done in the past, then we would actually get to revenues of EUR 15 billion.
What we are saying now is that we do not see that the market will grow at this level, and thusly we have to prepare for a smaller market in the coming years, while at the same time be ready to capture the possibilities that we have no doubt are going to come further on. I mentioned that we do see new opportunities in new markets, and I also have to say for some of the things that we experience around the world that there are interesting things developing. And it also means that the future Vestas that we are going to launch on the 8th of February, 2012, has to be ready to embrace these opportunities. Vestas has, in fact, already grown its business in a lot of new countries, and we need to do this even further.
But that also means that we have to change the organization in order to make sure that we capture this even better and with a cost structure that resembles this. As far as we can see, then wind power becomes more and more competitive day by day. And this is not only because we keep on lowering the cost of energy, but it's, of course, also because that the pressure on resources and the pressure on fossil fuels, etc., are going to increase. We have become 7 billion people on the planet now, and we know we are going to be another 2 billion people in the coming 25 years.
And every time when we talk this with people, we ask them, "Well, if we are not gonna go down this route, which way are we gonna go to make sure we get the fuel required?" And I think looking at some of the comments which have been made today by the IEA at a similar presentation in London, the International Energy Agency, is clearly confirming that wind has a very important role to play in the future energy mix. And of course, because and not least because we are going to keep on lowering the cost of energy in the years to come. So despite the fact that we are saying goodbye to the triple 15 aspirations, we are not at all saying goodbye to our vision, which still is Wind, Oil, and Ga s.
We do believe that wind is a very important parameter going forward, and we have seen no other evidence that wind is going to play an important role in the future energy mix. Therefore, we have also concluded that our vision, Wind, Oil, and Gas , is still very much intact. As I said, challenging years, we believe, in 2012 and 2013, but predominantly due to the macroeconomic outlook. If I compare Vestas performance in a challenging market, I actually do believe that Vestas is doing extremely well, but that the macro environment is for sure challenging, and we need to make sure that we handle this as best as we can. Our mission is also very much in place. Failure is not an option.
It's important to say that the predictability of wind is something which is absolutely crucial for the further development of wind into the new energy systems. Just to give you an example of why this is so important. Just recently, Vestas has done, together with State Grid in China, a big study on how to handle wind into the grid systems. To understand how this plays into the grid system are some of the capabilities and knowledge that Vestas has more than anybody else. So our understanding of how to integrate wind and making sure that the utilities use it in a way that doesn't surprise them is for sure excuse me, is for sure very, very important. Vestas' capability to execute according along these lines is equally important, focusing on safety, quality, etc.
Even though the Triple15 aspirations have been canceled, then our very high ambitions have not been canceled. We still believe that there are a lot of new opportunities out there, but we also have to say that the present economic challenges means that we also have to work in a different way. Some of the things I will come back and talk about later on in the presentations, because we do not forget that even though there are challenging times in some parts of the world, they are actually good news in other parts of the world as well. I just gave reference to the IEA, and this morning they came out with what I think is a very interesting statement at their big presentation in London. When they presented here earlier today, they said, and I quote, "Delaying action is a false economy.
For every $1 of investment avoided in the power sector before 2020, an additional $4.30 would be needed to spend after 2020 to compensate for decreased increased emissions related to climate change." Of course, people will not be surprised that we at Vestas say that we need to invest more in wind. But looking at the IEA and what they have said here, I think is very important to be aware of as one of the most recognized bodies of the overall energy sector and the outlook for the energy sector. And I actually had the pleasure at the G20, a few days ago in France, to watch the President of Mexico going through how investing in green was going to help Mexico do better economically instead of postponing it.
That is for sure a very big source of inspiration when we're looking at the opportunities that are together with going green. Now, these were just a few introductory remarks on my part. Now, I would like to hand over the floor to Henrik Nørremark, our CFO, who will take us through the nine months, the full-year expectations, and, as I said, some additional comments on how we look upon the accounting at Vestas. Henrik?
Thank you very much, Ditlev. And good afternoon. Even though that this says the nine months, and we are often talking about that you should look at Vestas on the long term, I will try to use this opportunity also to take you through, particularly the third quarter, to illustrate why it can be, in my mind, dangerous just to look at a quarter instead of exactly Vestas at the long term.
I will also ask you to pay attention to a number of pages here. Try to remember them for later pages in order to try to connect the figures, and how they are actually interlinked. If I shall try to frame the third quarter as such in a very few statements, I would say that the underlying activity, what it is that we are doing at Vestas and what we were doing for the third quarter, what the factories were doing, is characterized by an increase in activity. It's and we are often expressing that by shipments. So therefore, when I'm talking about shipments, what we are taking out of the factories, and what is actually taking place right here and now, I will often be referring to shipments. The margins for the third quarter is certainly also reflecting both mix in products, mix in geographical spread, and volume.
When we are talking about the profit and loss statement, we will very often get back to what we are trying to summarize as deliveries. Then I would say point to the strong operating cash flow performance, as I'll try to link to where is the cash flow actually coming from. If we start with the shipments, then the shipment for the third quarter was actually up 8% compared to the second quarter. And the reason why I am comparing to the second quarter, I'll try to show you in a moment. As you know, the second quarter on top line measured by P&L or profit and loss statement were almost the same, even though the result was quite different. Compared to Q3 2010, increasing by 5%. Now, the shipments are the one thing that is the main cash flow driver.
There are other things that are driving cash flow, but if I shall point to one thing that is driving cash flow very largely, it's shipments. For some of you who may have paid attention to when we changed the accounting principles last year, and where I went to a product, I believe it's actually still out there on the internet, you will be able to see that a large portion of the payments are associated with shipments. If we pay attention to deliveries, we delivered 1,270 MW to customers, meaning that we were handing over the key to the customer for our portion of what Vestas was supposed to deliver of turbines, wind power plants, if it is EPC or turnkey products, up 13% from Q2, and 25% down Q3 to Q3 2010.
However, pay attention to the 1,270 MW of deliveries in Q3, because when were they actually shipped? And as you can see here, I have illustrated when the shipment of those 1,270 MW actually took place: 342 MW of these in 2010 and before 2010, and 732 MW in the second quarter of 2011. So if I was putting a GPS on the cash payments that these shipments are releasing, the cash would actually be coming from, a lot of this cash would be coming from when these were shipped. Now, if we are looking to the profit and loss statement itself, again, Q3, the three months of July to September of 2011, as well as the Q2 of 2011, as I said, the turnover is more or less the same.
However, when we are looking to the underlying cash flow, we can see that the cash flow is somewhat different. Now, when we and when we are looking at the cash flow and why the cash flow is much more current compared to what we are seeing on the P&L, as I will try to further illustrate later on during my walkthrough of the third quarter, I want you to pay attention to the operating cash flow versus what it is that you see in the profit and loss statement. As I said, the revenue is about the same as it was in Q2. However, there is a significant difference in the earnings. Now, if we are looking to and trying to understand the earnings of Q2 versus Q3, we have to get down to understand the underlying products, because every product has its own characteristics.
Each and every contract and customer has its own characteristics. And if there's one thing I want you to understand, it is that a wind turbine is not a commodity. I understand that there are both customers as well as competitors who are trying to drive a wind turbine to be a commodity, a wind turbine that basically fits on every site. That is why you see Vestas has such a large product portfolio, the widest in the industry, because we are trying to have a product that is fitting into most categories that we have of sites, on which you are putting up a wind turbine. And why is a wind turbine not just fitting on every site? Well, every site does not have the same landscape. It does not have the same wind resources.
Therefore, the turbine will be generating differently, and thereby it will also financially be performing differently from site to site. Therefore, if I could decide, we would actually sell wind turbines designed to every site. That, of course, does not make sense from a manufacturing point of view why we have to limit the number of variations and platforms that we do have. However, even with the large portfolio we do have, it is possible to some extent, through some of all the other offerings that we are carrying, to further optimize such a site, thereby optimizing our customers' earnings and our customers' cash flow. We are trying to do that each and every site where we have the possibility to do it.
You will later see more about some of the offerings that Vestas is doing to understand that uniqueness of each and every site and thereby of how to maximize the product as good as it is possible, despite that the sites are each different. Therefore, you will certainly also see different earnings, even though that you are within, the same country, because the site is different. Now, we have, if you go back to the years 2007, 2008, 2006, Vestas was criticized for not taking on long-term contracts as a number of our competitors. Why did we not do that? Because we wanted to sell turbines in a very hot market, site by site, where we could actually calculate our customers' internal rate of return or net present value and figure out how much would be left to Vestas and thereby maximizing our earnings.
During the later years here, you have seen Vestas take very large frame contracts with a number of very large utilities and operators out there. Why have we done that if it is such a good idea to optimize each and every site and thereby our earnings? Because in the times that we have ahead of us, Vestas also wants to cover its activity of a base. These large frameworks are very much driving much more a commodity price. But we don't want to fill Vestas up just with commodity. We also want to sell, what shall I say, first-class seats that we can actually calculate and individualize and optimize the product to the customer's benefit and certainly also to Vestas' earnings benefit. This is the key in understanding down to each and every site and thereby the variation in earnings.
If you cannot remember anything else of what I have said, then just that each wind turbine, no matter which class it is, does not fit perfectly into a site. No one, not even our competitors. So where is it that I want to go with this? If you have, or if you look at Vestas' product portfolio, it will consist of 200+ projects a year, some of them very much larger than others. You also know that there is a seasonality in when these are executed. Now, talking about the margins on these, as I was trying to allude to you, they are not the same on each and every contract. There is a geographical split. We have Vestas has not chosen to make a specific product for a specific geographical market, despite cost base.
The difference between OpEx and CapEx for these owners is different than they are in primarily Europe, United States, Japan, and other OECD countries. We are, though, doing more than that. We are looking at each and every, contract to look at what is the scope of work that we are to supply, again, to maximize the earnings, but certainly for the whole benefit of the product. Vestas has some capabilities also in managing large products, we believe, which can actually reduce the cost overall of a product and thereby make a product both for the benefit of the customer and for Vestas more beneficial. Therefore, you see also Vestas has a mix of the contracts, which we will get back to in a moment, where we are trying to box them for, outside-in understanding, much more in, supply only, supply and install, and EPC.
Vestas has, during the later years, actually been looking to take on long-term service agreements. Long-term service agreements is a risk that Vestas likes, and therefore we look at this as an opportunity, because the more of these risks that are out there that Vestas actually can manage, it is also an earning possibility. Now, not every customer is equally far in their understanding of if they have the same view on this. Therefore, it is not all contracts where we are able to get the same. But if we have a risk and we are able to get a risk and we are able to manage it, there is also a price attached to it and therefore also an earning perspective. There are things as early generation. We have a number of customers who are interested in getting a product up for a certain time.
We are willing to commit to it, and if we are actually able to do it faster, because we have been able to manage it better than what has been scheduled, then we are also getting an upside if we are, if the park is operating ahead of time. I have listed 10 here just to list 10 of some of the issues or possibilities that we are talking about each time we are negotiating a contract and that we are assessing a value to. Now, if we look to the distribution to the left and that it is 200+ products, when we are looking at, shall we say, the average of the normal distribution, you will find the margin that overall, is an average for Vestas if we look at it on a long term.
Of course, the longer term you look at it, the more it will look like a normal distribution. However, when you break it down to quarters and the shorter periods you are breaking it down to, you will have fewer products. The combination of these products or when they actually take place, you may find a quarter where you have, from a geographical point of view and because of the content of the agreements, the turbines themselves, earnings that are different than you have in other quarters. This is the most fundamental of to understand why it is that there are actually different earnings and why we think it's okay to have different earnings on various projects in various regions of the world.
When we are talking about how contracts or projects are recognized in Vestas' financial statements, then unfortunately, there is not an international accounting standard for wind turbine manufacturers or providers, even though I would have liked to see so. So we are boxed into something that is somewhere between a shoe manufacturer, or another industrial company, manufacturing small items, and a contracting company building big constructions. Because when it gets to the supply and install, as you may remember from the change of the accounting principles, when it comes to supply and install or supply-only contracts, they are treated as if we were selling shoes. The only problem is that these big things that have a weight of more than 200 metric tons, most of them, are not necessarily coming out as shoes and certainly not in those quantities.
That is why you will see, if we look to Q2 of actual figures here, and again back to the delivery, as you will see here, of megawatts that are handed over to the customers, that they for these two, for the second quarter, mostly consisted of supply and install and supply only. And therefore, financially, they were also treated accordingly. For the third quarter, we had a larger element of EPC agreements. 250 MW of the deliveries handed over to the customer were actually on EPC. And EPC contracts are accounted for at Vestas according to the accounting principles and what it is we are supposed to do as per the international accounting standards, as the percentage of completion, meaning that progressively, as we are carrying out the work, the work we are recognizing the revenue.
Here is a more illustrative example of technically how this actually works and thereby how this, from a technical point of view, further will actually contribute to the variation short term in earnings. So we have both the underlying projects where we actually believe it's okay that there are different margins, plus we have an accounting technical aspect that is contributing to the variations. Now, to the left, I have an imaginary project where we are delivering the nacelles, blades, towers, and we are also doing installation and providing the transportation. This project has a number of turbines that we are putting up, and the cost associated with those is EUR 70. Now, the profit will then be EUR 30.
When we have delivered the very last piece of work that we are supposed to do according to our contract with our customers, we will hand over the key to the customer, and financially, we will account all of the 100 in the P&L or profit and loss statement, despite that we may actually have done some of this work, shipped the turbines in a different quarter. The P&L will, of course, show, since all 100 and all 70 are recognized at the same time, a profitability of the 30% provided that we actually were able to build it on cost. Now, I am expanding the very same project to Engineering, Procurement, and Construction contract what most people talk about as turnkey.
Technically, the difference between turnkey and EPC is, though, that turnkey we would also be providing the land, which in by far most cases, apart from India, we do not. Now, when it comes to the deliveries, you will see that we are still delivering, of course, turbines and the nacelles, blades, and towers. But in addition to that, we are doing what we call balance of plant: foundations, roads, civil works. We may supply the transformer station or the substation, a number of other items that need to be made when you are looking at a complete wind power plant. Now, for this balance of plant, we are not earning the same amount of money as where we have a much bigger portion of the value chain. Most of all, our balance of plant is handling of subcontractors.
So it's carrying a much lesser margin than what it is of the much more integrated value that we are delivering to the wind turbine. When we deliver the 80 or the nacelles or have actually shipped them, then we will start accounting for and take over the profit and loss, the proportional part of the earnings that is attributed to the turbines, the towers, the nacelles that have been shipped. Now, when we are performing the work on the balance of plant, we will start recognizing that when the activity has been carried out. However, since this is carrying a much lesser profit, even though the turnover may be relatively high, the earnings on that are relatively little.
If that is sitting in a different quarter due to the just sheer size of what these products have gotten into, it will look as the gross margin is declining significantly. Then to the right, of course, I have where you looked at the whole project as the same. Because there is a bigger portion of not as value-carrying as just delivery of nacelles, blades, and towers, we will have percentage-wise a relatively lower earnings. However, underneath, when we are looking to the cash flow, no matter if it is supply and installation or if it is turnkey, Vestas is always trying to match, subject, of course, to negotiation with the customers. Unfortunately, we don't decide everything ourselves. Still, as a part of the risk management that payment milestones are following when we are delivering the main part of the values.
And therefore, the milestone payments, no matter which contract type we are talking about, are still the same. So now we'll try to go through whether there is both a variation in earnings coming from the underlying contracts themselves, because there are both different services that are being provided. The products or the turbines are, in some cases, able to actually perform better on certain sites than other sites. And the most known of these differences are where you have building permits where you are so-called turbine constrained and not megawatt constrained.
This means that if you have a 3 MW, even though you have, from a cost of energy point of view, a 2 MW that may be performing better, then there will be customers choosing to put in a 3 MW, instead of a 2 MW, because the nominal value of net present value in absolute money they will get is better. And you can price it differently. When we look to the fixed cost base, or the, general, overhead and administration, the main part of, the jump from Q2 to Q3 is the fact that we have started amortizing and depreciating on all the assets that are, attributed to the V112 and, product upgrades on, particularly the, 2 MW platform. And this has commenced during the second half of 2011.
Going towards the balance sheet, I am sure I am not educating anyone here by looking to the net working capital as a part of the cash flow. Because looking at the net working capital, we have to pay much more attention to what is going on on the inventories and the prepayments from customers. Again, going back to the change of accounting principles that we had to comply with last year, much more of the activity when we are shipping the turbines financially and accounting-wise, they are remaining on inventory, despite that the turbine physically is not anymore on the inventory. The payment will be booked on the prepayments from customers, despite that it is a milestone payment.
So when you are looking at the increase in cash flow from Q2 to Q3, then, it is mainly reflected in the increasing activity that is taking place on the inventory and the milestone payments that are associated with it. One of the other things on this slide that I would like to point to is the trade receivables. Despite the, financial challenges that most of the world finds itself in, including our when we are talking about wind turbine manufacturers, Asian competitors, Vestas has successfully still been able to, maintain overall, its milestones payments when we are carrying out work and thusly, not suffered from, write-offs of, receivables or money that we have not been able to collect, as well as we have been able to have a, very controlled development in our, trade receivables despite increasing activity.
So just to recap on that part of the balance sheet that is the net working capital, pay attention to the inventories, because the inventories will fluctuate, because they will at any time reflect for those that are supply and install and supply-only, turbines that physically not be on inventory. They may already be up on the site somewhere in the world, despite that they are listed as inventory investors. However, the prepayments will be reflecting the activity and how far we are on carrying out these activities. Therefore, the prepayments will fluctuate. So when you are looking to prepayments, they will consist of both milestone payments as well as regular down payments for new orders that we have not started executing, and then prepayments from service activities.
The rest of the balance sheet, the only thing I want to point the attention to on the asset side for the third quarter, is the fact that we have completed the development of predominantly the V112 platform and then and the upgrade of a number of the 2 MW platforms, which you see reflected by the movement from development projects in progress into completed projects and started the amortization. We are amortizing these linearly. So despite that we have a fluctuation in activity over the year, as well as within the quarter, you will see the P&L loaded linearly with the depreciation of these assets. Looking to the liability side, we are coming to in a moment the warranty provision. But before we go to that, I just quickly want to point to the net debt.
So out of assets for more than EUR 7 billion, Vestas' net interest-bearing debt at the end of the third quarter has been reduced to EUR 834 million, or approximately 11% of all the assets. As I said, to me, the most dangerous financial item on the balance sheet looking over all the years, from a wind turbine manufacturer is definitely the warranty provision. The warranty provision is expressing how well-functioning, how good are the products that we are delivering to our customers, and how much of obligation do we actually have to go back and fix things. And you may look back to Vestas' financial statements over the years and look at the actual consumption of money on warranty accounts. And let me tell you, it has been extremely expensive.
You may even go back to the years of 2000 where there was a very large increase in activity up till 2005. However, a very declining profitability because the focus on making sure these products are well-functioning before they leave the factory is absolutely key for the long-term financial health of both Vestas and our customers. So therefore, for me, as the CFO of the company, the warranty provision and the consumption on warranty is extremely key. And it has we have been able to reduce this over the years, both with our very intense focus on service and the learnings of what is it that is breaking, go back and make sure that we don't repeat it, as well as with our intense focus on quality, particularly quality on the components from these suppliers. And as a part of that, we are looking at the Lost Production Factor.
How much production or generation of electricity are our customers losing when the wind is passing a Vestas wind turbine? It has been decreasing over the years, as you can see. So well, does that really pay off, for you? It certainly does. It pays off for both the customers and us. Because remember, no matter what, a successful project is the only thing that counts both for our customers, their customers, and for Vestas. So each time we are able to reduce the Lost Production Factor by approximately a percentage, then you will have approximately, calculated to net present value, 5% of the capital cost of a whole wind turbine.
So when we are going back to the sales and what we are trying to sell and how much value there is in these commitments of how this turbine will actually operate, it has a direct impact that is quite significant on the price that we will be able to sell a wind turbine for. So trying to finish off the walkthrough, a little extensive, I can see some of you are getting a little tired, of the third quarter here. To take the full cash flow, not only for the second quarter, but certainly also for the third quarter, 2010. Then again, if you want the most immediate picture of what is happening at Vestas and not what has more happened in the past, as you will have over the P&L, then look to the cash flow from operating activities. And why am I pointing to this one?
To the cash flow from operating activities. Well, I have actually been trying to go back in time, quarter by quarter, when I'm asked, which one figure will you look to in what is considered as a complex business as Vestas to figure out how is the temperature at Vestas? If I shall take one figure, and of course there are uncertainties associated with that figure since there are other things affecting both the cash flow. But the one thing that is driving the cash flow, and the activity is a relation between shipments and cash flow. And as you can see here, it's not perfect, of course. It would be wrong if it was perfect. This means that there were none of the other things that were important. But that is actually the shipments.
So just summing up, before we go on here, shipments are the primary driver, not the only one, but the primary driver on immediate cash flow. Deliveries are generating revenue over the P&L, even though that it is back in time. With that, I'll end the first 9 months of 2011 and my little walkthrough of, in my mind, why it is dangerous just to look at a quarter instead of a longer period of the activities of Vestas, because of the number of projects and the distribution that you have in earnings of those can vary significantly over the year. And if you want a better distribution, you of course need to take a better population, but I'm sure that you have had at least as much statistics as I have to know that.
So for 2011, on 13 November, we actually did adjust our guidance, or to put it more bluntly, gave a profit warning. Why did we choose to do that? I deliberately say choose because it was a choice that we actually made. Well, as what you also saw was that we have a new generator plant in Travemünde in Germany. It is manufacturing the 3 MW generator for our V112, as well as it's manufacturing the generator for the GridStreamer, the new product that is necessary after July 1 in most of Germany or entire Germany and most of northern Europe in order to comply with grid requirements. Now, this generator is new technology. Why did we choose to put a generator plant in Travemünde in Germany, and not in China? We actually do have, as you may know, a large generator plant in China.
However, this is making generators the more traditional way that you will see with a lot of bindings, a lot of copper. This one is with the permanent magnets. That is not the most intellectual thing about this generator. There are a number of other features that are actually making why this generator is, in our eyes, far more efficient than just a normal permanent magnet generator. However, why is Vestas making generators in the first place? Well, going back to what I told you about the warranty account and the warranty provisions, I can tell you that going back over the years, Vestas has spent EUR three-digit millions on generator replacements. This fellow here has a weight of approximately 8 metric tons.
Even though that there is a crane inside the turbine that can take it down, if you have to replace these in larger numbers, you will probably choose to take in a crane on site. You will have approximately 10 trucks for that crane. It will take approximately 3 days to assemble such a crane, to take it out, put a new one in, while you at the same time have loss of generation of power from the wind turbines. So seen in the interest of owners, is seen in the interest of Vestas, it's certainly not an option to have such a component fail. So since Vestas has actually insourced the manufacturing of generators in 2005, we have been able to reduce failures on generators to virtually close to nothing.
So overall, I believe it has been a good idea to insource this for Vestas due to the capabilities in the supply chain. I can also say that since 2005, Vestas has basically moved, as you know, most of its manufacturing from Scandinavia to Southern Europe, North America, and China successfully without any interruption with the perfect or close to perfect, maybe I should say, startup of factories. So it is not that we are inexperienced in starting up factories. We choose to place this in Travemünde, Germany, because this factory is highly automated and not laborious as the traditional way that you are making generators. And why have we automated a factory so much? Of course, cost is one thing, but certainly the quality requirements in future that will be necessary in order to make such big generators is actually very, very incredibly tight.
So the automation is one of the key factors in actually repeating the process over and over again. As you can see here, the generators are being made, and they are coming out of this factory, but they are not yet coming out in the quantities that we have expected at the time that we were, we actually made the profit warning. In order to understand why did we choose to make a profit warning? Could such a generator plant not catch up later and we could still make it? Yes, it could. Here we have to look at the whole value chain of manufacturing just the wind turbine and putting it up on site, and particularly the logistics associated with it. We have a number of raw materials and a number of subsuppliers coming in, anything from gears, hydraulics, electrical, etc., etc., etc.
We have pig iron for foundries. There are a number of things. It goes into the manufacturing. The generator is just one of them before it goes to the assembly hall or one of the assembly halls for nacelles and testing. Now, when it comes to the transportation, then blades are actually shipped separately. So are towers, controls, and there are even, in some cases, on the big turbines, hubs and other parts of the nacelle that has to be shipped separately. It takes approximately at least 10 trucks to ship a V112 3 MW turbine. All these need an escort here for Germany. And most of the deliveries for this time of the year, and particularly for this turbine, is for Germany. So of course, we have small logistic things as driving permits for each and every truck that needs to be coordinated accordingly.
And then we get to the installation, the scheduling with cranes, lifting equipment, tools, particularly manpower, the number of manpower that it actually takes to put such a thing up. And it takes approximately 10 days, on average, to put up a V112 wind turbine. Now, if you look at what hiccups in a generator plant actually will affect in this whole logistical plan, then you see, in particular when it comes to the installation, it's going to be severely affected by that.
In order not to compromise on quality, future cost of going out if these generators are not OK to take them down, and certainly first and most of all the safety of our colleagues who are actually out there installing these on a 140 m tower, we actually made the choice and said we are not going to put this logistical chain under further pressure than it already is by just cramming this more and more. So that is why we choose to postpone a number of deliveries here. So where are we with this plant today? As I said, it is making generators and it's making generators successfully, but it is not making enough due to the run-in of very much these automated machines and processes. It is, though, going better. And we see absolutely no issues for our 2012 deliveries.
To make sure that everybody is aware of when we are up and fully ramped up and it's running flawlessly, we will be issuing a stock exchange announcement when we can finally confirm this, expected to be beginning of 2000 at the very beginning of 2012. So we have guided under a number of figures. The figures affected here are the shipments. We have chosen to reduce shipments to 5,500. We have postponed products for EUR 600 million to 2012. And because of the earnings and the very integrated supply chain associated with that, in particular since this is to one of the high-earning markets and high-earning products, this has a significant impact on EBIT, reducing EBIT expectations to approximately 4%. What we have not adjusted and what we are not going to adjust is our order intake of 7,000 MW-8,000 MW for 2011.
Despite that the competition is still very fierce, we see a very prosperous demand for Vestas' particular new products, and not only the V112 but also the new versions of the 2 MW platform. And when you see that we have announced orders in October for 863 and only 1,316 MW in the entire Q3, it's just to underline that Vestas will not compromise the quality of the orders that we are taking in. If we are not done negotiating, we are not going to compromise to sign up and order early until we get the terms and conditions, what long-term is going to benefit, Vestas the best. And when we were talking about the margins on the products, I was mentioning also the geography. Because bear in mind that we are using the same products all over the world. We are not making country-specific products of variation in quality.
If there is one thing, and only one thing that you can remember talking about, wind, it is predictability and reliability. It needs to be reliable that when the customer can forecast his cash flow, it needs to be predictable so when the customer is forecasting that it will generate and that you are switching on the light, there will be light. It will not be a turbine that is down. So we are using the same platform all over or the same products all over the world. However, the economic metrics geographically are different and therefore the earnings are also different on the geographical areas. Therefore, when you are looking to the order intake, it actually does make a difference of where we have the order intake.
As you can see here, for the nine months of 2011, it has been predominantly North America and Europe. And we expect further, particularly for Europe, for the full year 2011. My final remark will be that despite that I am very comfortable on the outlook for 2011, do remember just the logistic and the fact that we are working outside on sites where there is supposed to be wind, where unfortunately for this time of the year in Germany, there may be coming snow, roads, icy roads, abandoning of transportation. Of course, it is not that we have not used our statistics to incorporate what we expect could statistically happen in our expectations. But if these are going to be abnormal and severe, it can still affect products that will not be completed in 2011 and be postponed. But so far, things have been developing very good.
The weather has been very good. So we are maintaining the guidance that we issued on October 30th, this year. Final remark, we are still maintaining a cash flow plus zero, no changes in that. And with this, I will hand over the microphone again to Ditlev.
Thank you, Henrik. Okay, I will now take you through a little more of where are we today as Vestas and how are we seeing the opportunities and challenges and what are our goals and priorities going forward. I think we need to differentiate between where we are and where the sector is. And if I look at where Vestas is positioned with a global presence, operating, as we say, in the region for the region, the product platforms that Henrik just talked about, and strong IPR, which gives us freedom to operate.
For me, this is an area people seem to overlook now and again, namely that the IPR issue is not only a question of protecting your own technology but also very much a question of whether you can freely operate. And Vestas have no challenges in this respect. And of course, also the future roadmap matching the future demand. I'm being asked whether or not we have invested too much over the last years in globalizing Vestas. On the other hand, I will say, in fact, if we had not done this, we would probably be standing with even more challenges if we look at where many of the European countries are at the moment, as just a few years ago Vestas was predominantly a European-based company.
At least that we know now, just looking, for instance, at how important North America has been for us in the order intake in 2011, that if we had not gone to the U.S., it would not have been possible for us to be competitive over there, not least because of the competitive situation but definitely also because of development between euro/dollar. Our global presence is not only a question of getting out there and interacting with the customers. It's, of course, also very much ensuring that we make a natural hedge to our activities around the world.
In this particular case, I think also one has to be aware of, and when I'm talking a little later on regarding the PTC, that the extension of the PTC and the likelihood for the extension of the PTC will also be very dependent upon the job creation in the United States. We know now the 24 governors have gotten together in order to file a, let's say, a plea to Congress because there are now so many jobs in the United States involved in the wind industry that a non-extension of the PTC could actually mean a lot of jobs because we are getting most of our stuff today from U.S. suppliers, could be fairly affected by this fact.
One has to remember that there is also some balance to be made here when you think about going into a new market and becoming part of the overall activity in the market. Adjusting as we go along is something that Vestas have done in the last few years and something, as we announced this morning, we have to do again. In April 2009, we announced, after a very strong first quarter, that unfortunately we had to lower the number of employees in predominantly the U.K. and in Denmark. This, of course, created a lot of turmoil, but that we felt was necessary. In November last year, we announced that we were very uncertain about the possibilities for Europe going into 2011. Unfortunately, we were not aware of how right we were about this prediction.
Thusly, last year, we had to say goodbye to 3,000 people, again, predominantly here in the northern part of Europe. So Vestas have, over just the last few years, closed down close to 5,000 jobs in this part of the world. But if you look at the totality of Vestas, then we have created a lot of new jobs around the world where there are possibilities. And therefore, adjusting, as we are again announcing today, is unfortunately something that we have to relate to and have to make sure that we execute going forward so we balance the cost structure of Vestas to where the market possibilities are. And this is, again, a very important theme when we have said that we want to see a cost structure which is EUR 150 million lower by the end of 2012 compared to the end of 2011.
Henrik has already talked you through the product platforms that are necessary to compete in this space. But I think it's important to remember, looking also going forward, what is it the activities that Vestas have taken? And I will come back and touch upon the lifetimes of the platforms because understanding the lifetimes of the platforms is absolutely essential also for understanding the future CapEx program of Vestas going forward. We are seeing that Vestas' service business is becoming a bigger and bigger part of our business. And back in 2006, it was around EUR 200 million. And we expect this year to have around EUR 700 million by the end of 2011.
Just the other day, we announced a new strategic agreement with Caterpillar on assisting us in doing some of the minor repairs to our spare part business, which today we have as a separate business unit running our activities for securing the service deliveries of the parts to the Vestas turbines. And again, looking forward, and I will talk about this in a minute, the fact that we have these capabilities is, of course, also another way of assuring that Vestas become less dependent on some of the swings that we have seen in the market for the actual turbine deliveries. Therefore, some of the capabilities that we have been developing on SiteHunt , SiteDesign , electrical redesign, Power Plant Controller, SCADA systems, and so on, are going to be very important.
I've used this morning when I made a similar speech to all of my colleagues at Vestas that we have to think about this in the same way that we maybe think about the oil business. If the way that you drilled for oil many years ago was still the same, we probably would not get access to a lot of the oil that we are getting today. We need to think differently and think about this in the same way when we're looking at wind. There are a lot of new opportunities which are surrounding the turbines, but it requires that you have the fundamental capabilities of dealing with wind in order to capitalize on it. And you will see later on when I talk about the CapEx program that you will see a Vestas that will invest even more in intangible rather than tangible investments.
I mean, it sounds the same, intangible versus the tangible. But in order to capitalize on this, it's a good idea to have a big installed capacity. We have just tried to illustrate how much installed capacity does Vestas actually have to capitalize on. We have, by the end of 2010, installed more than 47,000 MW. And when you're talking about new service offerings and the possibilities surrounded with that, that, of course, means that the bigger the installed base you have, the better opportunities you have to enhance new service offerings to our clients. And we have to remember that a lot of these offerings, of course, is something that you can gradually build on in order to further enhance the value proposition from the machine.
This, we find, is important when we're looking at our possibilities within service, which is not just related to the fact of the service of the turbine. So to have this knowledge of wind and the future opportunities here is very important. And it also means that to understand this means that you have to have the right tools in place. One of the reasons why, for instance, we have invested in very large computers and so on so we have this capability, as Henrik mentioned, on the predictability of the future performance, which, not least when the energy is being traded, is also quite important for our customers going forward. The improvement of quality and the efficiency is, of course, essential.
Back in 2006, on the safety area, where we were 25 injuries per 1 million working hour, we have, by the end of this quarter, brought down to 3.3. And we have increased the efficiency in our blade facilities with more than 40% in the last three years. But of course, we need to do even more in order to further capitalize on the investment we have made so far in creating and building what I would call a global manufacturing house for Vestas. Competing, as I said before, on IPR is important not just only for the freedom to operate but, of course, also securing future technology possibilities and further enhance this. And therefore, our focus on working along those lines will continue to be quite strong. All this, as Henrik mentioned, expressed in the lost production factor, obviously is pushing us again for new targets.
We have set ourselves a target that we should have a Lost Production Factor below 2 in the year 2012, as this is one of the most important issues both for us and for our customers. What is it that our customers want? Well, sometimes it's so easy to say and a little more difficult to do. And we have tried to illustrate here, seen from our perspective, when you are dealing in this sector, what are the capabilities that you want to have and see in a supplier like us. The reliable technology, the track record of installed capacity of design platforms and turbine development plants, the relevant capabilities of servicing them worldwide, Henrik gave reference to some of the global deals we have signed, assisting subsupply chain management that you have in place, and past experience in upscaling capacity.
Let me just dwell with this for a moment. I had the pleasure of visiting this generator plant just a few weeks ago down in Germany in order for myself to see and evaluate whether the ramping up plant was where it should be. The fact then that we had to come out with this adjustment, I just have, of course, to say, was totally the way it shouldn't be and totally unacceptable. But the plant that was made there and, let's say, the activities associated with the ramping up was in place. And people were confident that they were going to execute according to that. But unfortunately, in real life, things happen with the breaking down of pumps and so on. And as Henrik said, this is a very automated plant.
We therefore just had to accept that they would not be able to reach the original ramp up. It's not an excuse, but it's just to say we actually were out there looking at it. I went there personally to make sure that everything was at the level it should be. Even though we have upscaling capabilities, we had to say on this one, it was not good enough. On the organizational strength, wind, whether it's on or offshore, is very important to have the relevant manpower and the flexibility and scope of supply. I think people underestimate what it takes to, for instance, do offshore wind projects and the associated capabilities. It is not an onshore turbine you just drag out into the water and put up. It requires totally different skills of an organization to do it on time and at the agreed cost.
These are some of the organizational strengths and capabilities that we do have at Vestas and that we also want to further e nhance in the coming years. Of course, you need to have the sufficient financial strengths, as many of these projects have to last for more than 20 years, and a convincing track record. Just for the sake of good order, let me say that last year, one of our big customers, the United States, went to Vestas and said, "Could you maybe help us in trying to launch the first bond for a wind bond for the market in the U.S.?" In order to do that and to convince the bondholders, you have to come up with a total track record of the turbine.
And you have to give access to third parties to verify and validate the figures for the turbine so they could issue the relevant guarantees to the market. And we do believe going forward that, as with the financial crisis is taking place, we will see the need for other types of investors to engage in this industry who will demand that you have a convincing track record in order to put the financing behind the projects, which we know we do have. The competition will undoubtedly remain very fierce. We have no doubt about this.
We are also of the firm opinion that the challenges that we are faced with right now, also the reason why we are having to say goodbye to Triple15, is much more related to, let's say, the challenges in 2012 and 2013 than it is related to Vestas' possibilities in order to capture the business that there is out there in the wind market. A challenging 2012 and 2013, as I said, is what we are looking at now and how we're going to deal with it. I mentioned in my opening that we are preparing Vestas for a situation without a PTC in 2013. Unlike other markets where you may have the opportunity that things are gradually falling, then this will fall off from a cliff, could be. We need to make sure that we can handle that.
At least history has shown us that this is exactly what can happen if this does occur. Because if we want to make sure that we capitalize on these opportunities in the long run, we, of course, have to make sure that we do not fail in the short run. That is why we are taking this action now. But even as we are taking this action, I also have to say that it's not just a question of adjusting for this, but it's also because we are changing Vestas as an organization. The organization that we have had since 2005 has served us very well. It has been very important to have this organization to further globalize Vestas, to build our global manufacturing house. But now the time has come to change.
The presentation that I had earlier today to all of my colleagues at Vestas was to go through all the design parameters and criteria that are necessary for building a new Vestas to be launched on the 8th of February, 2012. It was never the plan to have this ready for today because, as Henrik mentioned, we have a very busy fourth quarter, 2011. We don't want to have anything, let's say, adjusted at this stage. But that was obviously before we, let's say, experienced our challenges from the generator plant in Germany. But that organization will be launched on the 8th of February. And it, of course, also has to entail these adjustments also on the cost side. So the future Vestas needs to look into how can we have lower cost?
How can we lower our investments while at the same time looking at the possibilities to further enhance our revenues for the business that are out there but maybe also do business in a little different way? When we look at the degree of capacity utilization, it's clear that with the manufacturing house we have built, we have to make sure that we utilize it best possibly. We are not fully utilizing the Vestas organization today. So if the orders are lacking, of course, capacity will then be reduced accordingly. However, as I said, we think about 2012 was probably a tough year. But because of the PTC challenge, that could be even tougher. We have to have a more efficient use of resources.
In order to make sure that we have already started, not last year, on implementing shared services and sharper focus on the return of our efforts and improve the scalability, all of these things are some of the major design criteria that we are working on, making sure it's being implemented in the new organization. I'm not going to talk in detail about this here at this gathering today. It is clear that making a new organization is much more than just moving boxes around.
When we are looking at the new possibilities and if I should describe it in one word, I would say it is a Vestas that is much more inclusive, also require that we have to look at the leadership styles and the leadership skills of Vestas who can take upon this challenge and execute it going forward, which, again, is a very important parameter. In the earlier presentation today, I looked through the nine dimensions that we at Vestas think are absolutely essential for the right leadership which is required to execute this organization as from the 8th of February next year. We also have to look at our investments which will be reduced and, as I said, also to watch more in the future intangible assets.
And we also would like, as mentioned, I think, in Q2 announcement, to see sub-suppliers and partners to carry more of the investments, just like, for instance, with the agreement that we have earlier talked about with Caterpillar. The new service offering to customers are new possibilities that we can capitalize on with the knowledge that we have. And I think it's important to think about Vestas not just as a company that is producing and shipping turbines. There are a lot of other possibilities out there that we need to be better in capitalizing on and developing. Just to give you one example, Vestas went into China in 2005 when the Chinese market was 600 MW. And last year, I think it was 22,000 MW.
What not a lot of people know is that the biggest grid study has been done in China on wind is done together between Vestas and State Grid of China. Why is that? I have no doubt it's because Vestas' capabilities in balancing and running turbines on the grid, which we know is a big challenge for China, is one of the areas where you, in the long term, are building your business relationships, which is far more important than maybe just selling a few extra turbines tomorrow. Therefore, Vestas will not go in and out on markets on the short-term horizon because the time is challenging. We will have to stay there for the long run because we know energy is essential to a lot of countries. Just yesterday, the Australian Parliament approved the CO2 tax.
We had to leave Australia because we had two factories there. We were not capable of using them because there was no business. But we stayed there with people, services, and sales. That has actually served us well. It's our clear feeling as the Australian market for sure will pick up now with a new tax on carbon, which, again, is going to, I'm sure we remembered, who are the ones who stayed there for the long haul. This is how we want to think about this. There is a lot of discussions about the development and development cost of turbines. Therefore, I have brought with me today just a little example of how do we look upon when we do investments into a new platform and what is the lifetime of a platform.
If you look at the V112, which Henrik mentioned earlier, has now gone into full-scale production, you could see a breakthrough here on, let's say, on an index level. 32% goes into the development cost, 40% to production capacity conversion and ramp up. And the adjacent technologies, 28%, could be new generator technology, GridS treamer technology, test and verification, et cetera. This is how we sort of say the full cost for a platform is developing. Then later on, there are some new innovation that is built upon some of the already existing platforms and the associated cost with this. But they, of course, cost something quite different than develop the entire platform as a whole. That, of course, raises the question, how long does a platform live?
I have brought with me here the 2-MW platform, which is still sold in the market and quite well-known. When did it start it? And how has it evolved since it was actually started? This started back in 1995. That was before Vestas went on the stock exchange and I think even before Henrik actually joined the company. And since then, it has gone from a V63-1.5 up now to becoming also a V100 and a 2-MW GridStreamer. But it is still the same platform that has evolved over time. And since it was started back then up till today, we are up now to more than 18,000 of the installed capacity on this platform.
It's therefore important to say when we talk about platforms that there are a lot of opportunities to further development on a platform which, of course, comes at a different CapEx than doing the actual platform itself, like, for instance, on the V112. Upgrades can focus on a lot of things. It can focus on safety and quality, reliability, et cetera. But when people come in and look at the performance of a platform, these are some of the data that are essential to understand that when you're looking at the capability of the platform, one should not always be confused whether it's one or the other number. I think Vestas have been pretty good in looking at how to come up with new ideas and new products.
But if there's some area where we have to say we need to be better in lowering the cost, it is our capability on costing out on the existing platforms without the loss of quality. Sounds easier than it is. But it's also a way to ensure that we can further leverage of the platforms and the manufacturing house that we have built. And therefore, in the new Vestas organization, we have to see our capabilities within these areas being further improved, not only through the technological approach but also through the sourcing approach. And as I said, when we are in the region for the region, also on a supplier basis, how we can find new solutions with them on costing out on the platforms with new ideas.
Maybe not always as exciting as developing a new platform but very important for Vestas going forward that we get better in this discipline. Now, I mentioned that I actually feel that the challenges that we are seeing in 2012 and 2013 are less Vestas-related but more the world around us-related. Let me just try and take you through a few highlights on the market outlook. If we start in Americas I've already talked about the challenges on the PTC side. Then we still, however, and that's important to remember, see, for instance, that the market in Canada is expected to increase steadily. And despite the fact that the PTC may not be extended, we still hope that some of the local renewable portfolio standards will ensure that there are still some business to be done there. But we know it can be challenging.
If we look further south, we see markets like Brazil, Mexico, and others are expected to see quite a strong growth, exciting new opportunities. Vestas is already there in, for instance, these countries. If we turn to Asia-Pacific, the Chinese market has definitely developed much slower this year compared to previous years. But we have no doubt that the market dynamics in China will be strong also in the coming years with the focus that they have on wind. If we look into India, we also believe that is a market that is going to be interested in the coming years. Australia I already talked about. Probably, we're going to see new development in various pockets of Asia where there is an interest for starting to get going in Southeast Asia and other areas of Asia.
In Europe, we have obviously, in southern Europe, a big challenge which have been some of the bigger wind markets. We, of course, do not expect that these are going to change with the sovereign debt crisis that we are seeing there at the moment. There, however, other parts of Europe, Germany, Sweden, we do believe are going to be attractive and going to be interesting for us to deal with going forward. In offshore, this is, of course, very much related to our V112 for the coming years. We do believe and we have just recently announced an order for U.K. We do believe that there are some opportunities. But the offshore markets going forward are, of course, going to be, from Vestas' point of view, more interested when we get to the Round 3 project in the U.K.
But that will not happen before we get to 2015. But from a Vestas's point of view, we will have investments into offshore, particularly in 2012, on, for instance, the V164, even though we will not see any revenues at this stage as it's under development. So northern Europe and probably also China will be the major offshore markets in 2012 and 2013. And but still, the offshore market is still going to be a small fraction of the total market compared to the overall situation. If we look at the revenue growth and if we look at how we can possibly get out there, I think we should remember that it's sometimes easier to say than it is to do.
Globalizing your organization and having the capabilities to globalize your organization is not something that people just have but an absolutely necessary requirement if you want to get into the new markets. And as I said, there are, fortunately, areas and countries out there who do not see the world as challenging as we see in other parts of the world. Sixty seven countries around the world have today Vestas turbines installed. And not only it's a question of getting out there and working with the customers but it's also working with the grid operator and understanding how to deal in the local environment. This is important for us because if we are not able to do that, it could be more challenging for us to grow revenues in the coming years. And you can then say, "Have we done this in the past?
And how good are we at it?" I'd like to use our SBU down in Vestas Mediterranean as an example. In 2007, the Spanish market was doing very well. It was doing very well until approximately autumn 2008 where it came to a standstill. It's been standing still ever since. We took a total different approach in close conjunction with our management there. They have now developed Vestas business in countries like Argentina, Brazil, Cape Verde, Chile, Cyprus, Dominican Republic, Jamaica, Mexico, Nicaragua, and so forth and so on, new exciting possibilities. If you look at after the first nine months this year, 58% of their revenues are coming from new markets whereas their traditional strong markets like Spain, France, Portugal, Italy, and Greece, obviously, some more than others, are under significant pressure.
But they took up and used their skills to get out there and get involved. And I'm sure a lot of Vestas needs to do more of this in the coming years as some economies are under pressure. So it is about new and existing turbines, new upgrades, and new services and new offerings while constantly lowering the cost of energy. We are fully aware of that, obviously, society expects to see the cost of energy go down. And we have to play our role in doing so. And we are happy to do so. I will, though, also have to say that when people talking about constantly lowering the cost of energy, one of the recommendations that we came up with and associated with the G20 recently was to stop the subsidy of fossil fuel.
Let's just remember when we talk about cost of energy that there's still $400 billion a year being given to subsidize fossil fuel when we talk about the real cost of energy. Then, as I said, some are also then talking about the total cost to society and not just for the megawatt produced. I, therefore, envision that the customer landscape for Vestas is not only going to be the traditional customer landscape that we have and we will further develop but we are also seeing new players coming in, new pension funds for putting up the financing, who will demand track records, who will demand the performance, and understand to provide capital for this.
This is exactly the reason why we have moved our treasury function from Denmark to Zurich in Switzerland and staffed it up with a team that is capable of putting major deals together in order to make sure that we can handle these opportunities and get new parties engaged. We are seeing in the CarbonCos , as we call them at Vestas, which are the carbon-conscious companies, companies who are very interested in understanding how to further improve their sustainability footprint. One of the largest wind parks that Vestas have developed in the United States has just been sold to Google, who are interested in making sure that they have to find a way to reduce their footprint.
When we look at the sustainability agenda, we are certain that forming alliances, as we have done through our WindMade initiative, is a new way of attracting B2C companies into investing into this kind of sector and hopefully thereby bridging some of the challenges we see in other areas because of the financial constraints in, for instance, the financial sector presently in some countries. This is why I say when we come to the revenue part that the fact that Vestas need to be much more inclusive in our approach is going to be essential. This is going to be a way that is reflected in the organization that we present on the 8th of February, how we intend to handle this and how we intend to further develop this to capitalize on the opportunities and with the knowledge that we do possess in this organization.
The final part I have before we go to the Q&A is financial priorities and goals. When we think about our new organization, we have basically thought about it in four dimensions. When you come to make decisions, it's probably a good idea that you have ranked how you take the decisions. We have said in our design criteria, first, customers, secondly, shareholders, thirdly, employees, and fourth, politicians. We see them as the four most important stakeholders for Vestas. In case of doubt, then it's good to have a ranking. This is the ranking as we see it for when making and designing a new organization. If you look, and this was not to be part of the presentation today, our guidance for 2012, we have, of course, also based upon Henrik's presentation today, thought about how do we best give expectations for Vestas going forward.
And therefore, when we get to the 8th of February, 2012, we will come up with new guidance principles on how we believe is the best way to look at Vestas going forward when we do give guidance to the market, meaning we will change it from the way that we have given guidance in the past. As it is clear, with this volatility, as Henrik just mentioned, I don't think serves anybody that we keep having such big discrepancies between the two. And we, therefore, need to make sure we come up with what we believe are the best way to guide for Vestas going forward. We are also evaluating whether the way we are communicating and interacting is the best way or we need to do this differently. Today, we are here in Denmark. In the past, we have been doing it in London and New York.
How are we going to do this forward and also who is going to be involved in the communication is something which is important to relate to. And, of course, by changing the organization, also give us good opportunities to evaluate what would be the best way also to make sure that we do this communication to the financial community in the most constructive way for everybody involved. We have, however, released a little data today, first, that we are going to reduce cost by at least EUR 150 million by the end of 2012, that we are lowering our investments from EUR 850 this year to EUR 650 next year whereas the tangibles are EUR 200 and the intangibles EUR 450. We expect to see a positive free cash flow. If I drill into the investments, in this respect, there's something which is important to recognize.
That is to be aware of that the investments going in to, for instance, the V164 are obviously big investments into a new platform, as you showed earlier for that part when we are looking into the year 2012 where the V164 is going to be a big project to undertake. If we just look away from the 2012 and look more midterm, we have said that we, on the midterm expectations, believe that Vestas is expected to gain market share and to deliver high single-digit EBIT margin with a normalized U.S. market. We do not have a crystal ball which is much different from the rest of the world. That is how we look upon the possibilities that we see on the midterm for Vestas going forward. And as I said, the V164 will obviously consume a big part of the investment next year.
But it's also important to remember that the entire V164 project will only be put into serial production if the required orders have been received. And, of course, in case we go ahead with this project, can have an impact on the CapEx. But that CapEx will only be committed if we have the required orders, as I said, in order to undertake the project. And this is, of course, something that we are now in the process of talking to our customers about. Before we go to the Q&A, let me just talk a little bit more finally about the situation in the United States. In 2012, we have to lower the cost reduction by at least EUR 150 million by year-end to prepare Vestas for this because 2013 could have a big impact on Vestas.
If we then look at how will this impact predominantly Vestas Americas, then that decision needs to be taken in the fourth quarter of 2012 after the presidential election and after there's been an election to Congress so we have a view on will or won't there be an extension of the PTC or other mechanisms. Therefore, we cannot say today how this will impact Vestas United States in 2013. But as I said, if there is no wind market in the United States in 2013, then obviously, we will also have to adjust our cost structure in the U.S. organization to reflect that. But that we will not know before we get into the end of next year.
The good news is that we are going to be quite busy in 2012 in the United States in producing and installing many of the orders that you have already seen being announced over the last three quarters. Let me also just say that we actually do expect to end up 2012 with the largest order backlog ever when we talk about all the challenges in 2013 and that what we are focusing on now here on the short term, 2012 and 2013, is about improving profit and securing the cash flow. Next time we are going to be around is going to be on the 8th of February with the presentation of the fourth quarter result. We will do that in London on the 8th of February, 2012. Let's turn to the Q&A session. This is a new system.
So we have to get the phone in later on. But Henrik will join me now up here on stage. And then, let's start with those of you here in the room before we go to the phone later on. Do we need to have a microphone? We have it up there.
Yes. Hello. Patrik Setterberg from Nordea Markets. A couple of questions. The first one is relating to your new EBIT margin guidance. Could you please define what the medium term is with the remark you're saying to the U.S. market? I suppose it is beyond 2013. We just said we just said it's on midterm. We have not put years on it. We said with a normalized U.S. market. But we are not setting years on. But I suppose the U.S. market, as you describe it with the PTC uncertainty, is not normal in 2012 and 2013.
We say it's a normalized market. And, of course, we will have to see whether it will or will not be normalized in 2013. We are just saying that we are preparing for that it will not be a normalized market in 2013. Okay. Thank you. Then a question to your factory in Travemünde. Could you please, anyway, quantify how many units the factory is producing today, either per week or per month? And then, secondly, what is the target you're aiming for? Well, as Henrik said, it's producing both for the 2 MW and for the 3 MW platform. And the plans that have been laid out for going into the turbines is now being adjusted. But if we look at for 2012, then, as was mentioned, we believe we'll be up and running again.
How many exact units we are affected here, I don't think it's the most important issue. The most important issue is to see that it gets to the quality and the performance that we want and at the required quantities. And as I said, it is producing. But it's not producing enough. And then, just a few turbines can, of course, have a huge impact.
Okay. And then, the last question is regarding China. You gave a couple of questions during the presentation. Could you just give us an update what the status is on the market? And do you expect that there's going to be a continued headwind on the Chinese market in 2012 as well?
On the Chinese market, I think it's also when we're looking into our colleagues in the business, looks to be a very challenging market at the moment.
And we have decided that for some of the activities, as Henrik said, when we are doing the contract review, there are certain times where we say, "No, thank you." We are not ready to give those terms and conditions as requested. But I think the Chinese market, because of the challenges that we have seen the last few months on Low Voltage Ride Through and some of the issue that I mentioned on grid, we actually do believe that the quality aspect and the compliances for these things are going to be much more important going forward than it has been so far. We have no doubt that China will be very focused on further developing the wind market. How fast it's going to pick up again, I don't know.
But there's no doubt that the Chinese market in 2011 has not at all been at the level that we expected. And I think that other people expect it.
Okay. Thank you.
Yes. Faisal Ahmad from Handelsbanken Capital Markets. A couple of questions here. And I'll try and take them one at a time. Firstly, relating to your medium-term margin targets, you're talking about a normalized U.S. market. What are you assuming in terms of PTC? Is that going to be necessary to have a normalized U.S. market? I mean, do you need that in 2014, 2015? And what are you assuming about the gas prices on that market also?
Well, I think we have. If we look, I think we all know that the present gas prices have been challenging for the PPAs in the United States.
What we are seeing at the moment is still a good activity level in the United States. As I said, we believe when the PTC runs out, this could then stop. Of course, there are other factors than the PTC. There are also developments on the gas prices. I'm not an expert on gas prices. The higher the gas prices, the better, seen from that perspective. When we say a normalized market, we are more giving reference to that there are a good activity in the market. That, of course, will, of course, also reflect to how we see the balance. At the moment, there has been a fairly okay activity in the market at this stage.
But there should be no doubt about either that there is a lot of speculation when it comes to the PTC if it will be extended or not extended and extended retroactively as it has been done since 1995 when it was introduced the first time. And therefore, the fact that this uncertainty is there is definitely creating some of what we call not normalized. So a lot of this will have to do with the determination of is it going to come back or is it going to be replaced by something else?
Okay. And just one more question about the normalized margins here. I mean, you're obviously saying U.S. normalized here. 2012 isn't going to be a normalized year. And 2013 isn't going to be a normalized year.
So can we expect that 2012 margins can be significantly higher due to a very large proportion of deliveries in the U.S. so we can actually see higher than single-digit margins in 2012 and then significantly lower margins in 2013?
I think we have to remember that when we talk about the normalized and, as I said, guidance, we're going to talk about in February. But we have to remember that when we are looking upon getting the PTC, you've got to be up and running by year-end. And that obviously means that the activity level, everything equal, will be much higher in the first half of 2012 because you need to get everything done in order to get the project ready for handover. So I can't tell exactly how many projects are going to be pushed through.
But I think it's clear that if people don't expect it to be done, the earlier you can do your projects, the better.
Thank you.
Peter Rothausen, Danske Markets. Just a little bit clarification on normalized market, what that means. You said today you have good activity level in the U.S. Is that the same as if we are seeing a normalized market today in terms of market installations around 7-8 GW? Is that what you mean by normalized market?
Well, by normalized market, we obviously mean also that we will have a fair good activity level at our own facilities. I mean, because if we don't, that obviously is very expensive for us, so. I guess you also said that. So it's not just a question of the size of the market but also a question of our share of the market.
It's just to put it into perspective in terms of your new margin guidance. Or maybe you could discuss it another way. If we don't have a normalized U.S. market, what kind of margins should we then be looking at?
But a part of a normalized U.S. market is the underlying power purchase agreements. There is no doubt that the developed projects are with a much lower power purchase agreement. And since you don't have a feed-in tariff system in the United States, they are each and every one of them subject to negotiations. The problem with the projects that are being developed is the fact that they do not have a firm PPA. And the PPA is linked to the speculation on the gas price.
So if we have to get back to a normalized U.S. market, we need to get back to that there is a speculation if it would be subsidized by the PTC. And therefore, the PPAs that are being negotiated by the underlying developers on when that speculation will stop and the utilities will start giving in to, accepting power purchase agreements that are at a more normal level without speculation.
Okay. And the second question on working capital, you expect a further reduction, as I see it here in Q4, indicating maybe a level of around 4% of sales by year-end or maybe even lower. Is that what you see as a structural new level because of the make-to-order principle? Or do you see some one-offs this year that means that, for instance, in 2012, that working capital rate should increase?
The working capital in percentage of turnover will be fluctuating due to the accounting principle. Just the share mechanism of how revenue is recognized and how it is that the milestone payments are coming in, this will be much more volatile as if we accounted percentage of completion reflecting the actual activity and incremental taken to income, the revenue earned, so to speak, as the activity was carried out. So when we are measuring the net working capital in percentage of turnover, it will be fluctuating. And it can be very random if it is a date that is determining will the product be handed over or not. We have projects where customers are responsible for grid.
Even though that is the fact, if the grid is not available so we can actually turn over the products to them finally, then there is a period, a grace period, where they are allowed to fix that. We have to wait before we can turn it in. Then you will have the obscure situation where it will not be recognized as turnover but sitting on inventory and thereby throwing off the net working capital measured at the end of a quarter or year significantly.
Maybe I could phrase it in a different way. The cash flow guidance you give for 2012 where you expect a positive free cash flow, what does that assume in terms of absolute working capital compared to year-end 2011 and year-end 2012? Are there any material changes in that? Or is that basically the same level that you are opting for?
Well, when we are forecasting the cash flow, we are, due to the fact that we hopefully have much more information than you do, looking at the milestone payments that are associated with it, new or ders, and other revenue streams we have coming in. And thereby using that as the forecast more than it is a calculation reversely on the balance sheet. So it is far more the shipment and the milestone payments which are investors controlled that is determining the cash flow forecast.
I guess your question is, of course, very much on how we operate on our make-to-order principle. And I think, as you can see from the numbers that Henrik presented, that the make-to-order principle has served us well in terms of improving the net working capital. The make-to-order principle is also going to be used in 2012, irrespective of the change of the organization.
Okay. On the last question, you mentioned that it's difficult to read anything out of the quarterly report. If we take the nine month period, you have a loss of EUR 82 million on EBIT.
And I guess that would, in my world at least, level out these uncertainties that there should be on a quarterly level in terms of product mix, market mix, etc. When I look at the nine-month figures compared to what you expected in detail in the year, around 50% of earnings come in the first six months; originally, that would be something like EUR 250 million. After six months, now, we have a loss of around EUR 80 million for nine months. Maybe you can try to explain to me why there are these big differences compared to what you earlier expected.
Earlier expecte d for the whole year?
No. Originally, you said 50%-50% earnings in H1 and H2 equal to something like EUR 250 million on EBIT in H1. But now, after nine months, you have a loss of EUR 82 million on EBIT level. I would assume nine month period EBIT should have been originally anticipated even higher than EUR 250 million. Maybe you can try to explain why there are these big differences. I would assume that when we talk quarterly, all of that uncertainty should have been eliminated after nine month period.
Certainly not. On the contrary, again, it will come down to not how far are the projects in actually being built and being executed, but are they turned over to the customers or not?
And if it is not that composition or a certain composition of geographical product mix, the individual contract itself of how that is put together will depend on how much will the profit show. To us, what is important is do we earn what we were actually forecasting to earn on each and every product that we are executing? This means for Q4 that we will be sitting in a situation with a number of products that, even at the end of Q3, are under execution where you have a number of the very high-earning products, even in the high-earning geographical areas, that are altogether. These are not necessarily leveled out throughout the quarters and throughout the year at all.
Okay. Thank you.
Thank you. Hi. It's Robert Clover from HSBC. Got two, three sets of questions. But if we could just start again on your aspirational/medium-term guidance, please.
As you've given us a sort of a caveat there in terms of the U.S. market, could you help us? And we can make our own assumption on the PTC. Can you tell us what the range might be for a non-normalized U.S. market in terms of margin level? So where would EBIT margins be if you don't see the U.S. market continue to perhaps have a positive PTC evolution?
That will be very difficult in terms of the activity level that we will see. I mean, I think it's clear that when I talked about the capacity utilization, of course, it's very dependent on that. And I don't think it would be right. I understand why you asked. But I think it will be very difficult to try and speculate about that.
Okay. In terms of, obviously, canceling Triple15 as you have done today, are you suggesting now that 15% margin is now structurally no longer achievable for Vestas in the wind business? I mean, I understand the timing issues over the next two to three years. But have you completely abandoned that hope in the longer term?
Not the hope. But I think it's fair to say when we have changed this midterm, as we have done now, we are, of course, also saying that we do, at this term, not foresee that we could get up to this level at this moment. But I also do think that it is essential when we are talking about the earnings that there is not only the competition. There is certainly also the underlying demand for electricity.
And if that demand is changing and it is changing with how the composition of that is put together and thereby the PPAs or the feed-in tariffs, that will, again, change the mechanism.
Okay. Thank you. And just turning to the profit warning, if we could just try and get a few more details there, please. I mean, it seems that the decision and the choice, as you put it, Henrik, was taken quite suddenly. Can you give us a little bit more understanding why the plant was below capacity at this stage in the year? And also comment on if there are any other production issues with the V112. I mean, we hear rumors that there's issues with serial production of the blades, for instance. And then be helpful to try and understand a little bit more around the numbers.
I mean, obviously, you're missing EUR 600 million of revenues now versus your previous guidance. The margin level on that seems to be disproportionately high. I mean, nearly sort of 40%. I mean, that's probably an over-simplistic way of looking at it. And the entire shortfall now versus Q3 expectations in terms of your guidance change for the year seems to have fallen entirely in the third quarter. So have you done some sort of form of kitchen sinking in terms of the costs you've taken in the third quarter and therefore why there's minimal impact on Q4? And it'd be helpful to understand the one-off costs. You said EUR 35 million. How much is operational gearing, etc.? Thank you very much.
Maybe if you take the figure part, then let me start with the operational part. As I mentioned, I went down to visit the plant some weeks ago and look at the ramp-up plan that there is associated with running in a new technology. As Henrik mentioned, there are more standard generators. Then, there are this completely new technology which is associated with this generator.
The plan that was made for ramping up the plant was in place. As I said, it's a fully automated plant and should get up and running. Running in a new plant, I think, especially also new technology, can have some challenges. But people were confident they were able to do that. Now, as the production actually was then starting to run, it turned out that things were becoming much more complicated, facing some running-in issues, etc., etc.
The point is, of course, here that also with the accounting issue, that only a few can have, from a P&L perspective, a huge input. But the reason for taking the decision was basically looking at how many do we believe we can make versus what we need in order to hit what we need to hit. Our decision was we better postpone this project to make sure we do them right instead of forcing them through here in the last fourth quarter. Or one could say maybe it would have been better to run in the plant in February than instead here in the autumn. That was the decision we took. Seen from our perspective, this is not a quality issue.
On the contrary, it is the phase that we have to make sure that the quality is there for the ones that we are shipping. And the other question on the V112 blades, I don't know what that is. Then, there was something on how it could be EUR 600 million.
Sure. Because then, we need to get back to the whole logistical part of it. Because this generator factory, when you look at the proportion of what that will make proportionately and how fast these generators are made to how fast you put up a wind turbine, not to speak about a park. Because we have to remember here, we are not necessarily only affecting the individual wind turbine.
But due to the accounting principles, we are also taking hostage revenue that will not come even though the turbines, they individually are there due to the fact that it has to be the whole park that has been commissioned and handed over to the customer. And therefore, on the P&L, you will see a fairly significant impact that is not necessarily proportionate to the underlying activity. And then, when you are talking about the earnings, again, the new products, Germany, I don't think I'm telling a secret for anyone here that knowing that Germany is a very high-earning market, certainly also for Vestas. So I will say when you do your calculations, you are much further to the truth than maybe you thought you were.
I'm Daniel Patterson, SEB Enskilda. I have a few cost-related questions. First of all, for next year, you're looking at EUR 450 million in intangible CapEx. For me, that sounds very high. I am aware that a big part of this is probably capitalization of salaries. But just a very quick calculation, let's say you have 2,000 employees. Each engineer gets 100,000 EUR. That's about EUR 200 million of the 450. That's salaries. But still, that leaves EUR 250 million in other stuff. So what is this? It's a very high number for me. Could you give us a little bit of flavor here?
Well, first of all, yeah. A good amount of the number is salaries. Unfortunately, though, each and every employee are not just working with salaries. We do have outside independent verification. Thereby, you can name some of them consultants. You can name them verification experts. There are certainly other costs associated with developing new versions and new turbines.
Bear in mind that a number of the R&D activities are new technology. If we just go five years back, Vestas was very much developing wind turbines based on known technology. But to get the cost of energy sufficiently down, it is now new invented technology. Why you will also see, as Ditlev was pointing out to the patents, that we are applying for far further patents today than we have ever done before. All these new technologies do require other things than just a salary, unfortunately.
But may I not also add that making a V164 is not another 3 MW ? That is nowhere nobody else has been in this size and challenges in this. That's a huge undertaking. This is not just another wind turbine.
Down at the Port of Aarhus, we are putting up a 30-meter-high building to make sure we have the test verification possibilities for gearboxes of that size. So it's not just another one.
Okay. So it's fair to assume that V164 is a big part of it?
Yep.
Yeah. Okay. Follow up on the EUR 150 million of cost saving you're planning. I know you want to say more in February. Can you say anything about what kind of cost savings you're looking at? Where will the money come from?
But there's no doubt, as I've also mentioned today, there will be fewer people at Vestas across Vestas. So that is, of course, part of it. But then, there is also adjusting Vestas for the new possibilities but also challenges.
So I said we also have to make sure that the cost is also related to the areas where we are seeing the further possibilities. So it's also about giving different priorities to the way we spend our money within given areas. So it comes from various sources.
Okay. A final question. This is probably for Henrik on warranties. I can see in the quarter that you're using, I think, it's EUR 17 million more than you're sort of expensing in the P&L. This has been going on for a few quarters. And I was actually hoping that this year, the two measures would soon meet. So when can we expect that the two measures will m eet?
Well, I say it is essential here. Internally, we are following each and every platform, each and every part of how they develop, certainly also warranty-wise. As you may recall, we had a major issue a few years back with the V90-3.0 MW gearbox. However, this didn't mean that we were running out and replacing all 3.0 MW gearboxes instantly. Just the fact that there is an issue doesn't mean that there's an infant mortality.
And therefore, when we are optimizing the replacement and the repair, that is not necessarily taking place at the same time as when the provision is made. The provision is supposed to take care of the liability. That is at any point of time when we report the financial statement. But in order to optimize both the replacement cost or reduce the placement cost as much as possible and certainly to keep the rotation of the gears that are to be replaced as fast and as low in inventory as possible, this is taking place over a longer period of time. When it comes to the warranty, I believe it's fair to say that it is still the replacement of the 3 MW gearbox. And it will not be completed this year deliberately.
Jacob Pedersen from Sydbank. I'd like to hear a bit about your confidence in your V112 machine winning orders in the offshore market during the next years. It is getting more crowded there. And competitors are having somewhat larger machines than your 3 MW machine.
Well, I think when it comes to both the offshore and certainly the offshore in Europe, you also see a development and a knowledge development with the customers of the performance of these machines. And therefore, it is not just the sheer size of the machine itself. There is no doubt about that the size itself means something.
That's why we are going for a 7 MW because of the infrastructure and all the associated plant structure. However, when you are looking to the competition, what is currently out there and for the products for the installation in the years to come, I do believe that the V112, with its performance ratio of cost of energy, will still be very competitive even with the competition.
Well, I think you probably have noticed that we have issued some of these, as we have to, some of these rumor statements about projects that are being negotiated. And therefore, I think the interest in the V112 is definitely there.
But I think also, if you look at the total number of projects that have been done so far offshore, I think history has shown us that the number of projects being talked about are significantly higher than those who are actually ending up being done. And that is, of course, exactly the reason why on the V164, we have said we are not going to release that CapEx unless we have firm and unconditional orders. Because one of the big differences, for instance, between the V112 and the V164 is, of course, that from a manufacturing capacity point of view, utilization, the V112 can be used onshore and offshore, which obviously, for us, in the utilization of our plants, gives us much bigger flexibility. Whereas the V164 is only going to be for offshore. So if that is not fully backed by orders, that is a totally different risk.
Okay. Just another question. Costs related to the restructuring coming in 2012, should we expect meaningful costs?
I can't comment on this today. We have only said that we need to lower the cost base with these EUR 150 million, latest by 2012. But as it is across Vestas, that means there are also a lot of areas that we need to look at also from a legislation point of view, how this needs to be handled.
Okay. Last question. You said in conjunction with your profit warning that you stick to your expectations of a positive free cash flow this year. Although now, we can see that shipments, which you just said, Henrik, is a major cash flow driver, are reduced by around 500 MW. Is there any other part of your business that has developed better than expected since you can stick to positive cash flow? Or have you just built in a buffer?
Well, I think first, when we came with our targets for 2011, we said we expect to have a positive free cash flow. And in order to get to a on-target in terms of bonus for us and for everybody at Vestas, we need to get to +200. That's what we said at the time. And you're right. Obviously, when you are lifting part of the shipments off, that is, of course, more challenging to the cash flow. But despite that, we still believe that we can get to a +0.
Kim Nielsen, ProInvestor. The average price per megawatt in Q3 was EUR 910,000. The V100 stood for 35% of the order inflow, of which half was from low-priced countries.
With new turbines like the V112 and the coming new generation with smart blades with flaps and LiDAR technology and even larger rotors, do you not see the average price per megawatt start to increase?
Well, first of all, when we are looking at the average price per megawatt, since we are fundamentally looking at the cost of energy, of course, that relatively should go down for the customer, the cost of energy. However, when you are taking the turbine itself and then dividing the number of megawatts into the price, of course, you get to all the scope of work, what it is that we have, what the customer have, etc., etc., that affects the price itself.
There is no doubt that's a reason why we develop new platforms, that new platforms and upgraded versions are to give both some of the customer some of that advantage and then, of course, also Vestas a better profitability.
You will start outsourcing some of your production. Are there any components that you, for a strategic reason, will still keep 100% in-house?
I don't think we've said that we are going to outsource our production. What we have said is that we are going to work more strategically with some of our business partners. So you could say that instead of us, for instance, investing in these activities and spare parts, we have done it with somebody else. But that is a different approach to say we're just going to outsource some of the existing facilities.
So you will still keep producing your own blades and generators? Yep. Okay.
My final question. How many orders do you need for the V164 to start building your production?
It's a question we have not answered.
Claus Almer from Carnegie Investment Bank. One question about the R&D cost or the guidance for 2012. The EUR 450 million, is this an extraordinary high level for that year due to the V164? Or is that the level we should expect for the years to come until it is being ready for the market?
Well, there's no doubt that the V164 is a big chunk for this part in 2012. I'm not going to give any guidance on going forward. But I don't hope we are going to make a V165.
But no color at all. I mean, should we go back to EUR 300 million? I mean, it's a big difference when you do the math whether it's EUR 450 million or EUR 300 million or?
Sure. But I'm just saying now that, looking at, we are giving expectations for 2012. We have not given any for the coming years. I'm just saying that when you are making such a project, then a big chunk of these costs are in there. And I think, as you saw some of the graph, that, let's say, the additional development cost on further escalating existing platforms is at a different rate than when you're making a full new platform.
Okay. Then maybe another way to ask. When you do a project like this, when will you have the chunk of your development cost? Will that be in the early phase, the mid-phase, or the final phase?
I do believe, as Ditlev was saying, when we are looking to, first of all, need to look at how long a platform is living.
We choose to make two new platforms, the V112, deliver the first one here, and then the V164. The V164, no one has ever undertaken, even in mechanical sizes, what it is that that takes. Just the electrical losses to calculate for that machine require some new models that don't exist. So there are work that Vestas needs to undertake that with both prior knowledge and also prior models that could verify. And therefore, the cost associated relatively in developing such a big offshore machine is definitely higher. And therefore, as long as that's going for that machine itself, it will be a proportionately higher cost.
That I understand. It's not about the level. You're just trying to figure out when will your R&D cost hit the maximum and then start to decline again from this turbine?
For the V164?
Yes.
Well, not only until we have completely developed it and put it into serial manufacturing. A part of what we may see that we need to develop ourselves possibly, if it goes into manufacturing, I think that would be a good story that then we have actually been successful. There will be, for sure, with this size, R&D cost that we have not had to provide before, even if it should be with the subsuppliers, that we will need to do. And therefore, we will see a different pattern longer forward for this.
Okay. Then a question about the factory in Germany. Can you put some color on the capacity once up and running at the right efficiency?
Are we talking about the numbers?
Yeah. The generator. How much capacity do you have?
We are not disclosing the total output that it should make.
But as Henrik mentioned in his presentation, I think the most important issue is that we do expect that it will be capable of producing the required quantities for our plans for 2012 from the beginning of the new year. But we understand the issue here. And therefore, we have said once we are confident about this, then we'll make a separate stock exchange announcement. I think that is the most important to know instead of the quantity.
But my question is more, I mean, if you are moving EUR 600 million of revenue to maybe the first half of 2012, and then you have what you have already signed for 2012 delivery, will you be able to take in more orders for this kind of generators in 2012?
Well, if you are looking at if we would be able to sign up more orders for the 112 capacity-wise or over the P&L-wise, that is a given that that would be possible since the work has already will have transpired. However, whether this will be a reality, particularly with the United States, and if the orders are to come from the United States, the answer will probably be that we won't because you have a deadline, December 31st, where there will be so severely increased risk, and the products will most likely not be ready for this. But from a capacity point of view, I would say I feel confident that once up and running as it should, then it will have enough capacity required.
Okay. Thanks.
I think we should turn to the phone. I'm not sure how it's working here.
Thank you, sir.
We will now begin the question-and-answer session. If you have a question, please press star, then one, on your touchtone phone. The first question comes from Rupesh Madlani from Barclays Capital, please.
Good afternoon. Rupesh Madlani from Barclays Capital in London. Three questions for me, please. First, could you outline what steps have you taken to avoid a repeat of the generator production issue? And are you able to quantify by how much generator production was behind your expectations in percentage terms alone? Second, do you expect to see any one-off charges for the EUR 150 million cost reduction impacting guidance for this year? Or do you think it will fall into 2012? And finally, perhaps as an industry comment, with the current difficult operating environment, could you comment on your view for broader industry consolidation? And how do you believe your customers would view this? Thank you.
Okay.Steps to avoid the challenge. A lot of steps have been taken. That is, of course, also based upon the statement that was given earlier of how we expect this to evolve going forward. I don't think, from a percentage point of view, it's that meaningful. But yes, steps have been taken. Of course, before we put this in today's announcement, we have had a service review together with the relevant people to make sure that we understand how we are in terms of getting this up and running again at the level as it should going into 2012. But as we said, we want to make sure that we actually finally confirm this in a statement so everybody is fully updated on this. But all the steps have definitely been taken. But running in a new fully automated plant, sometimes things happen.
In this case, it did. Concerning the EUR 150 million for 2012, then I have to say that we don't expect to announce these plans before the 8th of February and finalize it then. So I do expect that if there should be additional issues to be made, it should be in 2012 when these plans are finalized. But that, of course, also depends upon which countries that we talk about and the jurisdictions that is related to this. But the actual implementation of the organization is for 2012. And thus, I do expect that this will be there. But I'm not 100% expert on the accounting rules on how to treat that. And finally, concerning the industrial consolidation, it's very hard to know. The only thing, and I think, as I've also said previously, Vestas have no plans to participate in the consolidation.
But how this will or won't play out, I don't know. We hear a lot of rumors. But we are not participating.
And could you comment on how you think your customers would view this?
It depends on, I think, who we talk about. So I don't know. I think it would be too speculative. The only thing, as we view it, is that the demands, as I mentioned previously in the presentation, what the customers want to see on track record, etc., etc., I think is really where they put all of their focus. And I think there we stand in a good position.
Very good. Thank you.
The next question comes from Brian Gamble from Simmons & Co, please.
Afternoon, Ditlev. First question. Wanted to know, obviously, that you mentioned several times the PTC market and that caveat to long-term guidance.
Don't want you to speculate on if it's going to pass or not. But wanted to know, if it doesn't pass, are there some steps that you might be able to lay out for us that you could potentially use to stabilize your U.S. platform? And then secondly, when you broke out some of the geographic markets, obviously, the U.S. is a bigger component of that pie in the latter half of 2011. And I'm assuming that will continue into 2012. Are there other geographic markets that you could focus on if the U.S. isn't able to fulfill what your current beliefs are for it moving forward that could make up those lost orders or lost deliveries?
First of all, actually, we need to recall that we have, even in the very good years, never sacrificed nor left Canada.
Even though it's not nearly as big, will not be as big as the United States. Canada is still there. And we have a very good foothold on Canada. Second, what we do see now are some of the utilities with the renewable portfolio standards that are out searching for, looking for 2013 to be the year where they want to take advantage of the very low demand and thereby do their installations according to their RFQs. When you are mentioning other steps, I think it is important to remember that when we are looking to other new markets, then Vestas actually has full-fledged manufacturing in the United States and are able and have a good relationship with also U.S. Exim and therefore are actually able to export successfully from the United States with the assistance of U.S. Exims to other markets.
Of course, there are definitely also some of the things that already now we are looking into. As Ditlev was pointing out, with our treasury moving to Zurich to create some of these more important connections to the financing, I think this would be a very, very important step in that direction.
Henrik and Ditlev, maybe one follow-up on something you mentioned at the very, very beginning. You mentioned the State Grid study in China. Any additional details that you want to provide there as to what the takeaways from that study were?
Well, I think if I should say it in one word, then that is that the understanding of the requirements that needs to go in in order to operate a grid and at the same time have wind power as being part of this grid is much, much more challenging, I think, that people were fully aware of. So in one word, I would say quality here is really starting to show how important that is for the standards. And I think that's very good news because this is what we need in order to further develop the Chinese wind market, that this kind of dialogue takes place. So hopefully, it will also mean that we get, let's say, the right approach to the further development of the wind market in China.
Thank you.
You're welcome.
The next question comes from Andreas Willi from JP Morgan, please.
Good afternoon. Thanks for taking the questions. My first one on development costs. You're capitalizing the development costs for the V164 even though you don't really have any confirmed orders or basically have decided to actually produce this. Is this conservative accounting practices? Or do you have a choice? Do you have to capitalize it? Because it looks quite risky then. If you don't go ahead, you would have to write this off again. And the second question on market share, you plan to increase your 15% market share over time.
Maybe you could just give us some more indications regionally or by product where that's coming from, given that in offshore, you already have a relatively high share and others are coming in, given that you're overproportionately exposed to Europe, which is probably going to have the lowest growth, and given that you have in emerging markets where probably most of the growth is, there's just more competition there than maybe in Europe.
On the first one, on the choice of accounting, as I was stating, unfortunately, there is not a special paragraph on the international accounting standards for wind turbine manufacturers. So unfortunately, no. We don't have a choice. It's very given what we have to capitalize and what we have to expense directly.
2, when we are looking at how we have developed wind turbines in the past, in the V112, we have not been outselling the V112 either upfront. We have been very confident that it would be a very successful turbine, as our order intake is supporting. And therefore, there will come a point of time where we will have to make a choice or an evaluation, I should say, do we still believe that the customers are interested and will pick it up? When it looks to since we have taken the choice to make such a large turbine, it very much has to do with the fact to bring down the cost of energy, particularly the cost of energy, which the British government has set some very specific targets for. And that size actually does matter.
Should it be that there are so many outside circumstances that are pointing to that our customers will not go forward, we will, of course, take an assessment of that. The second thing I will point to is the fact that the technologies that we are developing for the 164 are not necessarily technologies for the 164 only. Some of these technologies are definitely for application in other wind turbines. So the part or the portion that would have to be written off is solely the portion that is directly attributable to the 164 and no other of the development technologies on the existing platforms. And it is given that these will, as we get down the development road, the closer we come to the end of the development, the more specific it will be, whereas in the beginning, it's much more generic.
Concerning the question on market share, then I think, as I said before, we have installed wind turbines in 67 different countries. We are present in all the major ones and I think also some of the newer ones, as I showed. One of the reasons why the market share obviously has changed so dramatically over the last few years have, of course, predominantly been because of China and the explosion in the Chinese market the last 3-4 years, which basically have distorted the whole global market share situation. Now, going forward, we do expect the Chinese market to be much more, let's say, stable than the very fast ramp-up that we saw the last few years.
So with that in mind and also with the fact that I think Vestas is well-positioned in many of these emerging markets and possibilities, as I mentioned earlier, that is basically what we are focusing on here. And we have, as you probably know, I mean, we have sales business units in quite a number of locations.
Thank you. Maybe a follow-up on the generator plant. You mentioned on the call that basically, you went to visit the plant a couple of weeks ago and then basically saw that it's not up to scratch in terms of the plans you had. Was that triggered only by your visit? Or did that problem already come up earlier in terms of an internal alert system through the organization?
Well, I went there because we knew it was very important that the ramping up of the facility went as it should.
I went there myself to make sure that the plans that were laid out, we were in a position to ramp it up as we should. And that is the presentation that I went through together with them and actually walked the entire plant. And now, even the best plans do not always stick. So unfortunately, it did not go according to the plan that was laid out and that I saw when I visited. So that's basically what happened.
Thank you very much.
You're welcome.
The next question comes from Martin Prozesky from Bernstein, please.
Good afternoon, everyone. Three questions, please. The first is on prepayments. Can you explain why prepayments were up so much in the quarter when orders were down nearly a gigawatt compared to Q2 and both shipments and deliveries were only up EUR 100 million versus Q2? The first question, please.
The second, on the new depreciation and amortization in both cost of goods and the rest of the P&L, can you just quantify that? It seems like gross margin dropped 10 percentage points in the quarter. And does that mean on a product manufacturing basis, excluding service, that gross margin is close to zero at the current volume levels? And then third question, on 2013, it looks like you only have 0.5 GW for delivery currently in the backlog for 2013. Can you give us a sense of confidence where you'll find an extra 6 GW of orders over the next year or so to deliver in 2013? Thank you.
Okay. The first one, on the prepayments, as I stated through the walkthrough of the third quarter, the prepayments are very much influenced by the milestone payments. And milestone payments are not just shipments.
The shipments are definitely an important milestone payment. But there are also other milestone payments associated with the shipment of the turbine or subsequent shipment of the wind turbines. So if you would have to divide prepayments into what is just on actual orders, I could. But I cannot because we have not specified it. So then I would be given a piece of information that we have not given to anybody else. But you have to find the answer in the milestone payments, both associated with shipments, but certainly also those that are associated with subsequent shipments. This means arrival on site. It means when you have mechanical completion on sites where they are still sitting on the balance sheet.
When we are looking to the gross margins, I don't know if you had the opportunity or maybe I have not been able to do it well enough when we went through the margins and the different margins and the different products depending on both geographical regions, on the products itself. Even within the geographical regions, there are significant differences depending on how well these turbines are fitting into the product itself, depending on how well the PPAs and those that do not have feed-in tariffs of what that PPA is and thereby the choice that we have made to sell it at. And then it is right that with the amortization and depreciation, that is depreciated linear and thereby just split evenly as soon as we start depreciation. And due to the very large base of assets that we do have, this is a significant portion. Just a follow-up.
Then on the last question on 2013 as well, I'd like some input, please. Just on the prepayments, I appreciate that you've got milestones, but we've seen an extraordinary change in prepayments in the quarter. So was there a few specific projects that were really large for milestone payments? Or can you just give us a sense for why in this quarter specifically it was so strong? Then on the depreciation, does that mean your new high single-digit target going forward in the midterm includes that new level of depreciation amortization in the calculation?
As I said, we had a good amount of shipments in this quarter. We also had a good amount of shipments in quarter two. However, depending on where when we are talking about the shipments, there is still typically two-to-four weeks' delay of the payments.
So even though they are reported as shipped, you may only see the actual payment have been received into the next quarter. So if the shipment of a product has happened within the last month of a quarter, you may only see it recorded in the following quarter as, of course, it's only booked when we have physically actually received the money. And then I can only say that there are the milestones payments associated with the shipments, which, of course, is the biggest one. But there are also other milestones payments. So it is not associated with down payments. It is associated with milestone payments.
Concerning the question of the backlog, we have not disclosed about our expectations for orders in 2012. So it's a little hard to comment on how we see. But I think I have already commented on where do we expect to get the orders from going forward into 2012.
Thank you.
Next question comes from Arnaud Brossard from Exane BNP Paribas, please.
Hello. Arnaud Brossard, Exane BNP Paribas. Competition is intense. Global economy is unsupportive. You said it earlier. You also said you wouldn't participate in industry consolidation. That was very clear. However, I'd like to know your views on the pros and cons of partnering strongly or merging with other wind turbine manufacturers. That's the first question. Then second one, can you explain how you decided on the size of your savings plan? And finally, your free cash flow guidance for 2012, it's similar to that for 2011.
Even though you expect investments in intangibles and tangibles to be around, well, EUR 200 million lower, does this mean that you expect 2012 free cash flow to be EUR 200 million lower than in 2011? Or does it simply mean that you have decided to keep somewhat vague free cash flow guidance given limited visibility at this stage? Thank you.
Okay. Now, let me start by saying that guidance for 2012 is actually at the meeting in February. But since we are having this opportunity today, we just wanted to share with some of the, let's say, the main points we are seeing going forward. So we'll have to get back to the question on the expectations to free cash flow. I hear what you're saying and you're asking. But free cash flow is, of course, zero plus.
And then we'll have to come back on more details level when we get to February. Concerning the size of the savings and how this has been done, that is, of course, part of the evaluation that we are doing at the moment of where we believe that it is possible with the new organization to take out these efficiency gains and how to further improve the structure. But, of course, we are saying it's by the end of 2012 that we will have an overall cost level of EUR 150 million lower than the end of the cost level for 2011. So there's, of course, also some filtering through time when you get the lowering of the cost. Concerning consolidation of wind and Vestas participation, I have no comments to this. We have no plans, as I said, to participate in the consolidation.
We still feel that we stand, despite challenging surrounding environments, in a good position to further enhance our own opportunities. That's where we have our focus.
Is it possible to explain why you're not participating?
Well, I think we have our own opportunities as Vestas. That is what we would like to focus on. We also do believe that with the wind knowledge that we do have at Vestas, that the possibilities that we have going forward are good and that, of course, the size of the market, as I mentioned previously, is more challenging. We don't really see that there will be a lot of value being added by participating in consolidation. That's why we are focusing on, should I say, our own plans and development.
Okay. Thank you. One last thing maybe about the savings plan. I'm just trying to understand why 150, why not 100 or 300? How did you decide on the fact that this was enough or appropriate?
This is about. It's not about a number. It's also about the size and the shape of the organization that we are looking into. And we are saying now a minimum EUR 150 million. And then we will unfold this on the 8th of February. But I also said to you that this is what we will do at the overall Vestas. And then we will have to deal with Vestas U.S. operations on a different manner depending on how we see the political situation evolved in the U.S.
Okay. Thank you. You're welcome.
The next question goes to Archie Fraser from Redburn, please.
Good afternoon. Thank you. Just a couple of questions.
Looking at this morning's announcement and the reference to the aim of generating positive free cash flow every year, including 2012, there's then a comment about the V164 and that that'll be going into production in 2015 and that there may be negative free cash flow in individual years ahead of that. Is the implication there that there may be negative free cash flow in 2013 and 2014? And should we relate that to your earlier comments about the very heavy capital expenditure on intangibles, EUR 450 million? Is that a conclusion that one can draw from those comments? And my second question relates to the profit warning. In terms of the revenues and margin, which are being postponed, are any of those being lost altogether? Or should we assume that it will all be recognized eventually? That's it.
Okay. Concerning the V164 and the cash that it could consume in terms of going into zero production, then I do not foresee the need for installing turbines at a, let's say, on a big-scale level before 2015 in the U.K. And thusly, the cash flow that would then need to be consumed in building up these facilities would be somewhere a half to a year in advance. So that is, of course, then but as I said, that is subject to that we have the firm and unconditional orders. So that's how we should think about the potential additional or big investments into the U.K. from 2015. Concerning the business that is not being undertaken this year because of the challenges in Germany, then these projects are expected to be executed in 2012 and thusly not lost.
Fine. Thanks.
Håkon Levy from DNB NOR Markets would like to ask a question, please.
Yeah. Hello. Thank you for taking my questions. With respect to your order intake guidance, have you seen any change in behavior from customers in terms of closing firm and unconditional orders over the past two to three months due to the turmoil in the financial markets? And secondly, your guidance EUR 650 million in CapEx for 2012. Now, this is still quite a high ratio compared to sales, something like 9%. And is this normalized levels of investments, or is there potential to invest less and still maintain or even grow revenues? Thank you.
Okay. Maybe I first, I comment on the order intake. I think, as we showed in the message or the announcement this morning, that the intake in October, as also you've seen, that the intake in October has been quite busy.
We normally know that the fourth quarter of the year is the most heavy on the order side. To be frank, how much of the order intake because Q3 was down on Q2, I think a lot of us are wondering what actually happened over the summer and whether this was actually impacting on delaying the orders going through the systems. I can't tell you. But we still believe we're going to get to the 7-8. And therefore, it was reassuring to see that October things started to pick up again. Then the other question was on.
It was on the CapEx and if it was possible to maintain the order intake without doing the high CapEx. There is no doubt about, as what we hope we have shown here today, we do believe in that there is also a future and that we are here to stay. If we didn't do that, then we should slash all development cost.
Then you can talk about how high should particularly the development cost since most of the CapEx for 2012 are on development cost and the fact that we are pushing on the biggest platform ever, the V164. We could, of course, slash that. Then you would not see I do believe that's a matter of belief, an instant reaction on some of the order intake.
But there is no doubt about that one of the reasons why Vestas is chosen by many of the larger utilities is the fact that we are servicing all segments and certainly also the offshore that still looks to have a very prosperous future.
Okay. Thank you.
Allen Wells from Morgan Stanley would like to ask a question, please.
Hey. Good afternoon. A few questions from my side. Firstly, just on the decision that you made not to provide 2012 guidance at the 3Q results today. As you have done in previous years, you've suggested that this is due to, obviously, uncertain times and commented on visibility going into next year. Yet you're going into next year with the biggest order backlog that you've ever had. Maybe if you can help me work out how these two bits of evidence come together. Second question, just on the CapEx side.
Guidance, obviously, still for EUR 850 million of CapEx this year. That means you will spend an awful lot in the fourth quarter versus where we are now at the nine months. Can you just confirm that is still the case? And also, maybe you can provide some comments on if the EUR 450 million intangible CapEx for next year should be viewed as a steady state run rate over the next few years ahead of the launch of the V164. And then my final question. On the conference call of one of your customers, Enel Green Power, yesterday, there were some comments about U.S. investment costs for new projects being somewhere around $1.3 million-$1.4 million per megawatt, implying turbine prices at or below $1 million per megawatt.
I wonder if you can just provide your view on where you see pricing in the U.S. market at the moment and how much further downside you think there could be there.
Thank you. Okay. Maybe just a clarification then, and then take on the CapEx side. It has never been the intention that we would give guidance for 2012 today. I know in the past, we did it in the third quarter. But we specifically mentioned that we had moved that to the fourth quarter. So there's no correlation between the guidance not being given today and that on the order backlog, as you mentioned, has always been planned for the fourth quarter. So with this, Henrik, CapEx?
Yeah. As you are pointing to the CapEx, particularly on the intangible driven by the R&D activities, there is no doubt about that we still do believe in the future, in particular, in continuing the development of the V164, specifically designed for offshore. There is no doubt about that we see 2012 and 2013 with the uncertainty in the environment around us, that that is going to give us a very, hopefully, a better indication of how will 2014 and 2015 look like. But if the world is getting more gloomy and doomer, then, of course, we will also, at any point in time, looking at our activities and adjust those accordingly if it is that we certainly do not believe that there is such a prosperous future for the wind market going forward.
But as we see it very much today, we still do believe that there is a future, certainly for the offshore. We certainly do believe that there is a future for the onshore. And therefore, we will, for current, continue to invest in that technology. And as I stated before, that even though the V164 is driving a lot of the new technology development, particularly in the beginning of the development phase, it is not that these technologies cannot be used to enhance both the existing platforms and thereby what we have shown previously here of the life of a platform and the upgrades. So it is much more concerning as we are going down 2012 and 2013 how the outlook for what the world will be going forward.
And then you had something about prices, I believe, on U.S., $1.3-$1.4, suggesting a price for the turbine and tower of less than $1 million. And of course, it depends, again, very particularly on what are the auxiliary services and scope of work that can be associated with that. But there is no doubt about that the lower PPA prices that it has been possible to get on the latest developed projects, that that does put prices under pressure in the United States. And however, the reason why we are still bullish and confident in the U.S. is that we do believe that we have gained what we were seeking to gain by moving the manufacturing to North America for that part that would actually give the lowest cost of a wind turbine planted on the customer's site.
Therefore, still do see profitable business opportunities in the United States even though the prices have been very much under pressure.
Final question, operator, before we close.
Thank you, sir. The final question will come from Klaus Kehl from Nykredit Markets, please.
Yes. Hello. Klaus Kehl from Nykredit Markets. A couple of questions. First of all, you mentioned there is a risk that the PTC might not be extended. And I agree there is a risk. But could you give us an update on what you hear from your sources in the U.S. and feeling for what is going on? And secondly, in the presentation, you mentioned that the completed development cost, they increased by some EUR 300 million from Q2 to Q3. Is that the entire price for the V112 machine? Thank you very much.
Okay. On the PTC extension, as I said before, that due to the fact that we are now sourcing, I believe, components in close to 30 states and the fact that we have seen a coalition of 24 governors getting together asking for an extension of PTC because of the localization of the wind industry into the United States is actually, I think, under these difficult challenges or these challenges in the U.S., giving us a hope that we're seen positively for the extension of the PTC. But we also have a presidential election coming up in November. And normally, these things happen at the wire, which means just by the end of the year. So there will be a lot of talk going up, I'm sure. But we don't expect that any decision on the PTC will be taken before end of 2012.
And therefore, we hope that with all the groundwork that is being done now, not just by us but also others, that people will listen to this on the political side and therefore look at it. So I'm saying that the PTC hopefully has a better chance because of all the business which is creating in the U.S. at the moment for the wind sector. But of course, we don't know. And we need to get past this election. And until we're past this election, I think it will be very difficult to forecast. And that's why we are taking these precautionary measures now to make sure that not only the U.S. but throughout Vestas, we are prepared for this. And then there was something about the development cost, Henrik.
Yeah. And the answer is no. It's not only the V112, as Ditlev was showing during one of his parts of the presentation. The life of a platform, the fundamental platform, is fortunately fairly long. Therefore, we are continuously making major upgrades on all platforms, new features. As you know, one of them is definitely the GridStreamer that was introduced at the same time as it was with the V112 to the new and enhanced grid requirements that are particularly in Germany and most of Scandinavia, making reference to the State Grid in China of what it is that both wind turbines can do positively for the grid but certainly also what is necessary in order to stabilize the grid. There are a number of upgrades that have also commenced production during the third quarter.
Okay. Thank you very much. Thank you very much for everybody who joined us today, both here at our facilities in Aarhus but also to everybody else watching on the web. As I said, next time we will present will be on the 8th of February, 2012. Thank you very much.