Good afternoon and welcome to Vestas Wind Systems' presentation of the first-half result for the year 2011 and, of course, also our second-quarter result. Special welcome to people here in the room today in London, press and analysts, and of course everybody else who have decided to join this presentation around the world, and as ever, a special welcome to all of my colleagues at Vestas. We have decided to call this presentation "Fierce's Competition in a Very Fragile World," which is basically a follow-up from what we also mentioned in the first quarter about the fact that it is a very competitive market environment that we are in, and we will of course touch upon many of these issues through the presentation today. We have, as always, tried to sort of put everything together in one slide with what are the key points after the first half 2011.
If you look at Vestas overall, then the activity level has basically increased as planned, and we are seeing here in the first half better margins due to the overall activity level, but not least also due to the mix of the orders that we have been executing. We have in the first half improved the cash flow, and we are, as I said in the beginning, still seeing fierce competition, but despite this we are maintaining our overall guidance, which are of course some of the key points that I will come back to and discuss a little later in the presentation. As ever, we have put this into four categories, apart from the actual results.
We're going to spend specific time on the overall order intake and also have a more thorough walkthrough why we maintain the overall guidance for 2011, and then we will go back to what we always do here with the Q&A session first in the room and then later on over the phone. So let's start to look at how things actually have progressed here after the first six months. We should have had a slide here. There we go. If we start to look at the shipments that we had in the first half 2011, then we have had a quite a busy first half 2011 compared to the first half 2010. Actually, the shipments are up with more than 100% in the first half, and the shipments in the second quarter 2011 are up with more than 140%.
That obviously sounds, at least in terms of percentage, quite impressive compared to the first half 2010, but here we have to remember that first half 2010 was a very bad first half for Vestas, and thusly the activity level that we now have at the organization after the first six months starts to reflect, I would say, a more normal operating Vestas with a more normalized activity level. If we look at the deliveries, meaning what we have handed over to our customers in the first half, then the deliveries are up with 25% in the first half and 34%, compared to Q2 last year. And again, as I said, we are seeing a more busy Vestas, here in 2011 compared to what we experienced in the challenging, first half in 2010.
If we then try to drill into how has this impacted the development in our profit and loss account, then starting on the right-hand side of the slide, you will see that the overall revenues have grown with 31%, in the first half of the year. Actually, due to, as I mentioned at the beginning, the mix and the activity level in the organization has meant that the gross profit has gone up from EUR 113 million into EUR 348 million in the first half 2011.
We have on numerous occasions mentioned that we will see a Vestas where there can be huge fluctuations between the quarters, and if you compare the development between Q2 2010 and Q2 2011, you will see some rather extremes, looking for instance at the gross profit, which is up by 1,967%, just an illustration of some of the real big deltas that we can get into. The point being here, of course, that as we are delivering to the customers, basically after the accounting change, there can be some huge variations between the quarters, and that, of course, is important to be aware of.
Looking at the development of the fixed cost, then the fixed expenses are in 2011 after the first six months slightly above first half 2010, but if we look into the second quarter, they are actually somewhat lower, 11% lower in the second quarter 2011 compared to the second quarter 2010. All this means that in the first half we have reached a small profit of EUR 8 million or basically a break-even result, as we mentioned in the Q1 presentation, that that was our aspiration after the first six months. This is, as I mentioned at the beginning, obviously a huge improvement compared to the deficit last year of EUR 219 million, but again, the first half 2010 was a very difficult year, first half year for Vestas.
Looking into the margins and the overall gross margin, again, as I said, has progressed nicely, and that is of course also due to the overall activity level and the mix. If we look at the development within fixed cost, then as everybody knows, in the third quarter last year we unfortunately had to announce the layoff of approximately 3,000 people and closure of some facilities, particularly in Scandinavia, and of course some of these are having a positive impact on development of the fixed cost, which fell from the first quarter 2011 from close to 16% down to 12.2% after the second quarter, and we do expect to see the downward trend continue in the development of the fixed cost, as in percentage of revenue.
Again, we had very high costs because of the first half 2010, so again the delta between 2010 and 2011 has to be seen in that particular light. The reduction of employees are basically following the announcement from back last year when we were more than 23,200 people at Vestas. We are by the end of the second quarter 2011, 21,700 people, and that is basically in line with the plans that we laid out, in connection with the announcement in the third quarter last year. If we turn into the net working capital and the development of that, there are in particular two lines that one needs to focus on, the first one being the inventories.
They were very high by the end of first half 2010 with more than EUR 4.1 billion, and they have now been reduced to EUR 2.5 billion, and if you go to prepayment from customers then these have been reduced from EUR 3.1 billion to EUR 1.4 billion, and again the delta between 2010 and 2011 seems quite big here, but if you look at the development between the first and the second quarter then the changes in percentage are actually quite small within these areas. Overall it means that after the first half we are standing at the 12%, net working capital as percentage of revenue after the first six months, and we do believe we can further improve this by reducing inventories, and of course also looking at the order intake in the second half we do expect that this will also have a positive impact on the development within the net working capital.
Turning to the balance sheet, I would say if you look at the lines on the balance sheet, and not least the delta again between the two quarters, Q1 2011 and Q2 2011, there is actually very little movement, at least as little as I don't really think there is that much to report on today, but again, of course, some delta to 2010, but in each of the lines there are not a lot of news here on the on the balance sheet. If we, however, turn to the development on the cash flow, there is definitely more to report on, on the development, within the cash flow.
If you look at the bottom of the slide on the free cash flow, which we have put in this orange box, you will see that in the first half 2010 we actually had a negative cash flow of more than EUR 1 billion, where we in the first half 2011 have improved to just below a minus of EUR 500 million in free cash flow, so even though it's still definitely a negative figure, but very much moving in the right direction, compared to where we were 12 months ago.
If we look specifically into the second quarter 2011, on the left-hand side, you will see that the cash flow from operating activities actually was positive with EUR 126 million, and after the deduction of investments we reached a free cash flow of -EUR 63 million, so particularly here in the second quarter we had a good progress on the overall cash flow, and just, for the sake of everybody, you can see at the top on the adjustment for non-cash transaction what that constituted, which is described on the right-hand side of the slide. But overall on the cash, an important progress made in the first six months 2011 and giving us good reason to believe that we will be in a position to reach our target of more than zero in free cash flow for the full year, and I will come back to that later on.
Another important development for Vestas, and not least also for our customers, have been the development within warranty provisions and the lost production factor. If you look at, the warranty provisions first, we are here at the end of the first half 2011, having a figure of 2.3%, which is again an important illustration of the overall, satisfactory performance of, the Vestas, fleet of turbines, which again, of course, are absolutely essential for making sure that, our customers get the business case certainty that they need. This is, what we at Vestas expressed through the lost production factor, which was below, 2.5%, by the end of first half. And just to remind everybody, what is the lost production factor?
That means that if you measure all the wind that passes by a wind turbine, 24/7, how much of that is actually being captured and generating the electricity as it should measured on the wind that passed by, meaning do we capture the wind and do we give the customer the business case that they're looking at, and we are now at an all-time low here below 2.5, which of course is very important also later on when we're going to talk about why we do believe that Vestas will be in a position to reach an order intake of 7-8 GW for the full year 2011.
Looking further into another element which is also important for the order intake, and that is the all-important safety development, and here I would very much like to say to all of you at Vestas, again, a fantastic job gone with done with the focus that there is on safety throughout the organization, and if you're ever in doubt whether it really means the world to us, well you can see now after the first half 2011 we brought it down to 3.2 injuries per 1 million working hour, an all-time low, so a great job done, but we need to keep on having this focus, otherwise it will go up again.
Not only is it very important for the safety of everybody, but as I said later on when we talk about the order intake, it is very important that Vestas is demonstrating that we are very strong also within this area in order to make sure that we can secure the orders going forward because it is becoming a bigger and bigger focus point for our clients to have partners that have a very strong track record within safety. Turning now after the first six months into the development of the order intake. As I said in the beginning, the world is of course very fragile and Vestas does not have a crystal ball which is any different from anybody else of how things are going to evolve.
However, when we look into what our customers are telling us and how they see the development, we still believe that, provided that, the business will continue, that Vestas is in a very good position to get to our 7-8 GW, and I would like to take this opportunity to take you through this, but of course we all have to have in mind that we are in a very fragile world at the moment. Just looking a little bit upon the history on the order intake, back in 2008 we had an order intake of 6 GW and then that went down with 50% in 2009 to 3 GW, and one of the reasons why the first half 2010 was so problematic for Vestas as it was last year.
However, the year 2010 had a very strong rebound on order intake where we got to 8.6 GW in the year 2010. Now we estimate for the year 2011 that we will be around 7-8 GW, and on the right-hand side of this slide you can see the geographical distribution that we have in the order intake. We expect, and still do by the way, half of the orders to come from Europe, 25% from America, North and South, and 25% coming from Asia. If we then look at how things have progressed after the first six months, then the first quarter we had a very slow start to the year on the order intake with only 630 MW being firm and unconditional.
Fortunately here in the second quarter we had a strong rebound on the order intake bringing us in 2,265 MW, all in all getting us close to 3 GW for the first half 2011. If we look to the geographical split on the order intake, we'll still see that, so far, we are close to having 50% of the orders coming out of Europe, 37% coming out of America, and 17% out of Asia. Now if you compare these figures with what I said before, you can basically conclude that America is ahead compared to our initial expectations and Asia is behind, and there is a particular reason for Asia being behind, as it says on the right-hand side of the slide, which is related to China.
We have seen in China some challenges, somewhat beyond Vestas' control, namely that it has been difficult due to grid constraints and grid permits for our customers to get these in place, which have delayed the order intake in China. And secondly, we have also seen that some of the financial institutions have become even more tough on the requirements when it comes to release of liquidity and funding, which again has slowed down the order intake, in particular China, in the first half of the year. When we look into the second half of the year, we do believe that these things are going to be resolved and thusly we're going to see a pickup in orders in China in the second half of the year.
If we look at how far we have come in getting to the 7-8 GW range, and there we have on the slide put in the midpoint of 4.6 that we need to get in the bag, so to say, in order to get to our full year guidance. You will see we have so far announced 635 MW to date, and that means we have just below 4 GW to go before we get to the full 7-8. If you looked at why it is that we believe that this is still possible, then a lot of it has to do with, not least, our product launches, the V100 and the V112, which we believe are going to be one of the important drivers for Vestas to get to these expectations of the 7-8 GW.
But the turbines themselves are of course absolutely important in this respect, but so are a few other components that I would like to take you through of why we do believe that Vestas is in a good position to get our share of the market in the coming six months. The cost of energy, which are so vital for our clients, is not just about the products, but it's also about other issues. It is about the services, it's about the global presence, and it's about the quality, and as I said before, definitely also about the safety approach that you have in your organization. I would just like to take you through now how we see that this is absolutely possible due to the offerings that Vestas have.
If we start with the product platforms, as I mentioned, the V100 and the V112, but not to forget that there are also other platforms that we are offering to the market, and not least the opportunities that there are within the three wind classes, whether it is high, medium, or low wind, we feel that Vestas is well positioned also when it comes to on and offshore, and we have of course here announced also the V164, but that is not part of the order expectations for this year, but it's just to mention that that is of course also now coming into being part of the overall product platforms.
If we specifically look at the V100 and the V112, you will see here that more than 25% of the order intake in the first half actually came from the V100 and the V112, meaning that we also therefore believe that the competitiveness from these turbines, and if you look at the V100 coming with three different weightings, a 1.8, 2.0, and 2.6 coming into the market, but of course also the V112, that is going to be an important driver for getting, to the, to the overall target for the full year. As I said, the V164 is not part of these expectations, but since we met, last time in connection with Q1, we have had two important developments, related to the V164.
The first one is that we here in the U.K., in Port of Sheerness in Kent, have secured an option for 70 hectares, so we have the manufacturing facilities in place in order to execute the V164, and secondly we have started operation at our blade testing facilities on the Isle of Wight, which again is an important part of, let's say, the puzzle in order to get to the full realization of the V164, even though, as I said, it is not part of the order intake for this year. The V112, as mentioned in Q1, would come into production here over the summer, which has now happened, and you have three pictures here on the slide, both the nacelle manufacturing in Denmark, the blade facilities in Germany, and also the generator manufacturing in Germany.
Actually, Vestas is making all of our generators in-house today, and because we have changed technology on the generators for the V112, we started manufacturing of these permanent magnet generators in Germany, and all of these are now coming into production here in the second half and has already started. As I said in the intro on the order intake, that the products are of course very important, but so are the things related to service. And just to give a small update on how we have seen the development for Vestas within service, you will see back in 2006, we had service revenues of a little more than EUR 200 million, and by the end of this year we expect service to be about EUR 700 million revenue, so quite an increase in growth on service revenue.
If you look at the lengths of the service contracts that we actually have on the announced orders, it has gone up, from 4 years back in 2008 up to more than 6 years today, and we are actually at a level, as it says here on the right-hand side, that 97% of all MW include service contracts. So when we are looking at coming back to the cost of energy, one thing is the product itself, but definitely also the related services and the operations bringing down the cost of energy plays a very important part, and it should not be underestimated that the lost production factor figure that I showed you a little earlier has also a lot to do with the services that people are providing throughout the Vestas organization, and another important tool in order to get to the 7-8 GW.
Vestas local presence can in these uncertain times not be underestimated. If you look into Brazil as an example, we set up our sales office there back in 2008, and due to the strong increase and interest in the development of wind in Brazil, we have taken the decision, as we announced a few weeks ago, that we will set up assembly facilities in Brazil and they will start operation in Q4. Now, the Brazilian operation is not a new Colorado, meaning that we do not have plans to put up big blade facilities and other things, but it is an assembly facility and it is an operational cluster for service and training for our colleagues and customers in Brazil, and we will also have a supply chain and spare parts center in Brazil, and these new facilities are part of the existing investment program that we have already announced.
If we then look at many of Vestas' other facilities like, for instance, North America, when we talk about global and local presence, I can say today that if we were not in the United States with a full operation today, Vestas would not be able to have this kind of order intake in North America when you look at such a competitive market, and of course also with the lower US dollar and the general uncertainty on currencies. So again, the fact that we are in the region for the region is a very important driver for getting to the 7-8 GW in the overall order intake. Of course, the order intake would not happen without our customers and whether they are key accounts or whether they are non-key account customers.
If we look back at what we have previously announced, with some of the major deals back in 2010, we announced a very big order with EDPR in Portugal of 1,500 MW firm and an option for 600, and later on in 2010 we announced a firm 400-megawatt order from Enel, with 1,000 in option. Now, all these obviously went into our order backlog, as some of them were already firm, the 1,500 and the 400. On the 30th of June, this year we announced a share of wallet agreement with EDF in France. The order is put together in such a way that EDF will ensure that at least 50%, maybe more, of their newly installed capacity of wind onshore in Europe will be with Vestas, and in North America at least 30% will be with Vestas.
If you look at the order backlog, then in connection with the signing on the EDF deal, it was 180 MW at the time that went into the order backlog. However, we now have an agreement with EDF, and that means in order to get to the 7-8 GW, as EDF are progressing on these projects, they will go into the backlog. Or said in another way, it's actually only a very small fraction of this share of wallet agreement that is already in the backlog, and again therefore giving us good confidence in why we believe we can get to 7-8 GW of the firm order intake in 2011. By the end of June, we have an order backlog of 8.3 GW with a value of EUR 8 billion, and as I said, these are constituted by firm and unconditional orders.
If we look at the geographical split of the backlog, we have 55% out of Europe, 31% out of Americas, and the remainder out of Asia, and again here I have to say that the tradition in Asia is also that you do not hold the orders for so long, as you tend to do in other markets, but irrespectively, as I said in the beginning, we still need to see more Asia orders coming in from Asia in order to get to the 7-8 for the full year.
The fact that we have these firm and unconditional, of course also means that Vestas have a number of orders that are conditional, that are not part of this, and of course when we look at the visibility for getting to the 7-8 GW is very much based upon what we have under negotiations at the moment, as well as the orders that are conditional that Vestas knows of, and therefore again giving us, we believe, a better visibility on how it is possible to get to the 7-8 GW for the full year. That was some of the reasons why we do believe we can get to the total order intake of 7-8 GW.
If we then turn to the total guidance for the full year 2011, then for everybody that have followed Vestas, the following will not be news, but I think it's important that people remember this, that when we look at the full year 2011, we actually have nearly all the orders in hand which are firm and unconditional. But because the year 2011 is back-loaded, it will mean that the recognition of revenue and EBIT relies obviously on a smooth project execution in H2, and that is of course also as a consequence of the accounting change that took place last year, that we need to make sure that the turbines are handed over to the customers and our CORs so that they can be recognized this year.
I know there's nothing new here compared to what we have said previously, but just to make sure that everybody are aware and remember that these are the conditions. The overall guidance for 2011 has, as I said, is maintained despite the fragile world that we are in at the moment, and the order intake of 7-8, I think we have touched upon, production and shipments around 6,000 MW, all in all giving us expected revenues of EUR 7 billion for the full year. And again, the revenue in Q4 2011, because it's a back-end loaded year, means that we do expect to see revenues on par with Q4 2010, obviously when we are handing over the projects.
This of course does not mean that, we are installing everything in the fourth quarter, but that's when we are handing them over, and that is important to be aware of. As previously mentioned, of this service is expected to be EUR 700 million and overall an EBIT margin of 7%, for Vestas, whereas service is expected to bring in around 15%. If we look at the investments, then, Vestas, investment in the first half, were lower than we initially had anticipated. However, we do expect, investments to pick up in the second half, and that actually means that, we still expect to have a total investment program of EUR 850 million. Due to the fact that the investments are being done later, than initially participated, it will also mean that our depreciations, will be a little lower than originally at EUR 100 million.
We do expect them now to come in around EUR 70 million, just to be aware of when we are looking at the impact from this. As mentioned, the free cash flow, I'll come back and talk about that in a second, we still expect to be above zero. The warranty provisions are already below 3%. Industrial injuries, we have in the first half now standing at 3.2%, well below the 5% that we have set as the target, and the other ones, customer loyalty, we will not be able to measure before the beginning of next year, but again an important driver being the development on the lost production factor, which hopefully also will be recognized when our customers are going to score our performance for the full year. One area where we have not done well enough is in our share of renewable energy.
We are below our two targets here of 40% of energy coming from renewables and 95% from renewable electricity, and in order to mitigate this, Vestas will develop and set up some of our own wind farms as we do not want to buy certificates but would like to make sure it comes from wind parks, and therefore you will see Vestas being engaged in this, not least for own use. The reason why we had this challenge is because after we closed down some of the facilities in Europe, it has taken us longer than we thought to get these things developed and thereby ensure the green electricity for the full year 2011. When it comes to quality, I can say things are progressing according to our expectations of 5 sigma for the full year.
Just turning to the cash flow and the expectations of more than zero in free cash flow for the full year. If we look back at 2008, 2009, and 2010, it is clear that Vestas had a very negative performance on cash flow, and that it was of course because we decided to maintain our globalization of Vestas, irrespective of the operational challenges that there were out there in the markets. When we look into the year 2011, we do expect to have the best performance when it comes to cash flow from operations, as you can see on the black bar here on the right-hand side of the slide, but as we are expecting a similar level of investment, that means we still believe we are going to get to zero.
Now, if you compare what we need to do, then in the second half of the year, we will need to do just below EUR 1 billion in cash flow from operations in order to get to the full year target. Is that achievable? Well, just for comparison, we actually in the second half 2010 did EUR 763 million, meaning that it would not be abnormal for Vestas to have quite as significant of the cash being generated in the second half, and if you compare to the progress we have made in the first half, it's one of the reasons why we actually do believe that it is possible to get to our overall cash flow target for the full year.
Talking about cash, another important area since we met last time has been Vestas' new revolving credit facilities of EUR 1.3 billion that came into effect on the 1st of July this year. We are happy to say that nine very strong banks are involved in these facilities, which is on a five-year, one plus one, facility, and you can see the names here on the slide.
On top of this, you have to add that Vestas is in the position of considerable bilateral facilities on top of this new revolving facility, and I mentioned this today because if you compare this also with our overall expectations to cash flow for the year 2011, it will actually mean that we hopefully will enter, the year 2012 with quite a considerable headroom, which of course is important for us in this very fragile world that we are operating in at the moment, but that gives Vestas a lot of freedom to operate going forward, and therefore we are very pleased that we have managed to get these things in place already now as we are, as I said, operating in this, fragile world.
Going back to what we said about the uncertainty in going forward is not that different compared to what we said back in February when we gave the guidance on macroeconomics, financing situation, regulatory issues, volatile markets, and the fierce competition. These still prevail, and as I said, Vestas is of course subject to what will happen in the rest of the world, but overall it's our clear impression that despite this Vestas is in a tough market composition, actually still doing quite well and remains competitive even though with these uncertainties. We were actually next time supposed to be in New York when we are going to give an update on our Triple15 aspirations.
However, since this is very much a strategic update, we have decided to move the presentation to our new facilities in Denmark, in Aarhus, where I hope many of you will come and join us, because there we will of course spend time on the Q3 result, but more importantly we will give a lot of airtime and into the presentation of how we see Vestas develop in the coming years, but I'll promise people in New York that we will come back in Q1 next year in New York, because after that we'll be back here in London doing the presentation for the fourth quarter on the 8th of February. So I hope everybody will come and see us when we present this in Denmark on the 9th of November.
Again, just to summarize before we go to the Q&A, the activity level at Vestas has increased as planned, better margins due to activity level and mix, the Free Cash Flow improved, fierce competitions, but we do believe Vestas is well positioned to mitigate that, and based upon this we have decided to maintain our overall guidance for the full year. With this in mind, let's turn into the regular Q&A session, and as ever please remember to state your name and two questions, and if we have a microphone we can start up here.
Rupesh Madlani from Barclays Capital. Two questions please. First, you've seen consolidation from your clients and counterparties. Would you say this is a positive or negative for you from an earnings perspective?
And second, with respect to the comments around fourth quarter for revenues, what does this mean for your third quarter with respect to earnings? Should we expect a positive or negative result for the quarter? Thanks.
Okay, from the consolidation point of view, let me say that Vestas is not really engaged in this. I think overall, if you look at the consolidation, we'll see how things further evolve, but overall it will probably be a positive, seen from a Vestas perspective, and therefore I would say that the market is of course very competitive, but again we feel that it's important with the size that Vestas have that we are in a position to give the necessary support to our customers.
I will also say that what our customers are demanding of us today is increasing more and more, which is fair, but again meaning that you need to have a certain size in order to be able to accommodate the demands from the clients, and I think therefore that is a natural development that is maybe taking place here. When it comes to the third quarter 2010 and '11, I think we have been as close as one possibly can be of how this is going to be to be distributed between the third and the fourth quarter, so we'll have to wait and see how it evolves in the third quarter. Thank you.
Hi, I'm Mark Fielding from Citigroup. Two questions then please. Firstly, warranty provisions in the second quarter, as you highlighted, were significantly lower down to actually in the quarter 2.1% of sales.
Should we consider that an ongoing level as the risk they rise slightly through the rest of the year? And in terms of the second question, there was a significantly higher level it appears of sort of unannounced orders in the second quarter than we've been seeing recently. Is there a change in trend there, that you could maybe elaborate on?
On the warranty side, as we have said, we expect it to be below three, and whether we will be below three I can't tell you today, but the only thing I can say is that for the existing fleet, they are performing very well, and even though of course we are putting in some new technology into it, it is still a very few numbers of turbines that we are putting in, so I would say that the warranty figure that we have for this year is of course very much based upon the existing fleet. So, we'll be below three, but the final number I can't tell you today.
And just to follow up on that before you come back on the orders issue. Yeah.
Is there a risk therefore next year as you get the obviously the newer fleet out and about, the warranty provisions start to rise again? Is that something you'd expect?
I sincerely do not expect that to happen because that will mean that, seen from a quality point of view, that things we have not done well enough. So of course, the lost production factor and the performance of the fleet are very important for us, so I can only say that our focus on making sure that the fleet performs well is still very much going to be in place.
But what the guidance for warranties is going to be something we'll talk about in Q4, but the only thing I can say is that the quality hopefully will mean that we will keep on seeing the Lost Production Factor and thus the warranties perform very well also next year.
And in terms of the unannounced orders?
Sorry, yeah. On the unannounced orders, we have not had a change of policy. It is more a question of also some customers, some don't want to have them announced, some don't, and especially some of the smaller ones, so there's not a change in trend, at least not on our part, but then we will see how things evolve here in the third quarter, whether it will be on the same level or higher.
There's nothing, let's say, planned about exactly which percentage will be of unannounced, which will go into the order intake.
Good afternoon, Allen Wells from Morgan Stanley. Just following up on the order comment, you're obviously very confident still in your guidance there, and activity picking up in the second half. Maybe you could just comment on regionally where you see the from behind the scenes where you're seeing activity levels, maybe slightly ahead of what we're seeing at the moment, and what may be the catalyst for those orders to be signed. And secondly, on the CapEx side, obviously highlighting that CapEx is going to be slightly back-end loaded, this year. Is there any comments you can make? Is there any risk that maybe we could come in with a slightly lower CapEx number than you currently got in your guidance?
Any comments maybe you can make on how we should think about CapEx next year with the commitments on the V164 and the wider market. Thank you.
I like your phrase, if there's a risk of a lower CapEx, well, turning into the orders, as I mentioned, we have, in Europe, when we went into the year 2011, we said that we still expect Europe to be challenging, and of course, for instance, if you take a country like Spain, it is still very challenging, and we did not have, let's say, any specific hopes that Spain would sort of come back in 2011.
If you look at what has happened, for instance, in Germany, I think actually we have had quite a nice positive development in Germany also on the regulatory front, and therefore we have no reason to believe that Europe will not—in not all, but a lot of the countries—were going to hit their numbers, and therefore we maintain that Europe is expected to be about half of the total intake. In North America, I think we've had a nice progress in North America, and we still believe that we'll continue to see Vestas doing well. Of course, maybe the uncertainty about the ITC could also mean that we will see some more rush in the last part of the year. We'll have to wait and see.
Then, now we are going to have an auction in Brazil here later in August. So, apart from China, as I specifically mentioned, where we have had, which I believe are outside Vestas control, then I think overall there are not any of the markets that have behaved significantly different than what we had initially anticipated. I would say, actually, seen from a regulatory point of view, actually I think we have seen some major trends moving more positively towards the development of wind, going forward, and I think despite the financial uncertainties we're seeing in the world, we're not seeing countries, for instance, backing off of their aspirations within this area. So I think that's basically the trend we are seeing.
Coming back to the CapEx, we still expect to have this of EUR 850 million for the full year. Is there a risk or an opportunity depending on who you are? Whether it will be lower, time will tell, but it's very much due to how things are progressing in installation phases and so forth and so on, but we still believe we're going to get to 850.
Concerning the V164, I will not talk about our CapEx expectations for 2012, but I will say that obviously the CapEx that we have committed on the V164 is within technology and it's within the development of some prototypes, and we will not release a big chunk of the CapEx for the manufacturing unless we have the orders in-house, so that will be very determined on whether or not we're going to release these investments.
Thank you. Hi, Robert Clover from HSBC. Couple of questions, firstly on margins. Wondering if you could give us a sense for how much of the margin improvement was due to operational gearing impact and how much was due to the product mix, the two main reasons you've attributed for the improvement. And just a comment really on the fixed costs in Q2, which were down 11%.
How sustainable is that? Was that, or were there any sort of quarterly variability that accounted for a relatively good performance there? And second question really is on the comments you made about the wind farm build-out. Just wondering what the timescale is for building your own wind farms, whether that's included within this year's CapEx, and how much of your order guidance is contingent perhaps on in-house orders, sh all we say? Thank you.
Well, let's start with the latter one. On the wind farms, well, we actually had hoped to get this going earlier than what we have seen so far, and what we have in plans in terms of, yes, it will come out of our own CapEx because it will be something we will be involved in.
It could also be with some of our customers, but somehow Vestas being involved, but that is basically to cover our own needs for green electricity, and that's the focus we have, so there will be one or two wind parks away. We'll see, but that is the level that we talk about. On the development of the fixed cost, we obviously have started, of course, we get some benefits from the reductions that we made last year. We do not have, I mean, expectations to further increase our cost, our overall cost base.
We will, of course, overall have, because we will be very busy in the third and the fourth quarter, we will have additional installation costs and stuff like this, but on the overall fixed cost structure, we don't have any plans to change, apart from what we are already in progress in installing after the reduction made last year. On the product mix side, I can say that there can be, depending on what we take in during the year or in the quarter, can very much influence the kind of earnings that we get in the quarter, and as we have previously said, that's why we can see these kind of fluctuations.
I think it's important to remember that we also said in Q1 that we actually were hit in Q1 by some orders that had a low margin, in particular coming out of India because of some old projects we were executing, so there were some negative impact there. So, going forward, we of course hope that with the new product platforms are going to further help Vestas secure our part of the business, or the margins, but of course it is very, very competitive, so it is, it's more due to the product mix, and again, as I said, in Q1 we also had some bad impact or, let's say, areas which were affecting us there.
Hello, it's Archie Fraser from Redburn Partners. Couple of questions.
Firstly, on provisions, I think that the 2.3% figure you mentioned ties in with the EUR 56 million provisions for the period figure for the first half on page 31 of the statement. The next line says, "Warranty provisions used during the period EUR 85 million." Does that mean that you actually paid out 85 but only made 56? Have I understood that correctly? And if so, over what period and in what circumstances do you expect these two figures to converge, as I imagine they must? My second question relates to turbine pricing. There have obviously been major downward pressures in the last 18 months, over capacity, new entrants, etc. There's talk of prices stabilizing. Can you give us some color on that going forward, your views on what you're seeing in terms of pricing? That's it.
Okay.
Yes, you are correct in the question that you've referred to. Obviously, looking at the provisions going forward is of course also very much made upon how the turbines are performing, and as you can see on the lost production factor going forward, we are seeing an even better performance of the turbines, and you asked when the lines are going to cross. I don't know, but obviously this is something that we are constantly reviewing how the turbines are performing. We still have some older things that we need to pay for, but overall we do expect to see an increased, better performance of the fleet going forward, so that is, I think, the first part of your question. The second part on the turbine pricing.
It sometimes strikes me that it's a little difficult sometimes to try to say, "How is the pricing being done on a V112 with the features there and so on compared to others," and then bundle everything into some kind of commodity with a long-term service agreement, etc., etc. I think the most important issue for us is how do we make sure that the cost of energy that we come up with to our clients is competitive and it's giving them the advantage that they are looking for. There is competitive pressure, no doubt.
There is, for instance, also in the United States pressure from the low shale gas prices which have pushed down the PPAs that of course is also an important part to be aware of, but overall I would say, yes, we have a competitive pricing environment at the moment, but we do believe that thanks to the overall business case certainty that Vestas is providing, that this will be a way for us to mitigate that. We already mentioned back in Q1 that yes, it is a very competitive market at the moment. Have, are things going to improve again? I have seen some of these reports that people talked about. Time will tell. The only thing we are putting pressure on ourselves to make sure is that we remain competitive.
There are of course also when you make these. I know people are making these MW euro comparison of the development prices. Of course, one also has to be aware of that here there are currencies fluctuations involved there, and obviously when we make ours in euro, with the lower dollar, that is having an impact there. So, looking at the product offering that Vestas is putting in here now, we of course hope that we, thanks to the product offering and services we are putting forward, will be able to protect our part of it, going forward instead of, you know, just handing in the margins, as being talked about.
Hi, it's Mark Freshney from Credit Suisse. Just two quick questions. Firstly, on the potential own-use wind turbines, if you like, what would be the potential size and capacity that you would seek to build yourself?
And secondly, just, you know, you talk about the 25% of new orders coming in being, I think, V112s, V100s. How would you expect that on a standalone basis to impact your margins going forward?
Well, as you can see that since the V100 and the V112 are already 25% of the order intake in the first half of 2011, at least you can see some of it there. If we look at the, let's say, the competitiveness we feel that we have on these machines, is here. I think it's important also to remember that the V112 is not just an onshore machine, it's also an offshore machine, which of course you'd be aware of that in the order backlog at the moment, Vestas does not have any offshore orders in the backlog when we talk about the overall pricing.
Also on the pricing, of course, which includes the V112 here. When we talk about the wind farms of own development, it is, it is not significant. It could be, I think is it maybe 50-75 MW, something like that. I mean, it's not a, I would say actually this comment is made more to the share of renewable energy target, and as I said, it could also be that Vestas will have a part of a bigger wind farm with one of our clients, instead. We, we don't know yet, but that, that's what we're seeking for.
Thank you. Thank you. Ben Lynch from Commerzbank. Three questions, please.
One, based on the comment that I guess Q4 will be sort of flat year-on-year versus last year, who would sort of suggest Q3 is down 10-ish% Q-on-Q and then Q4 is up 150% Q-on-Q. You have, you know, you state good visibility on Q4. Can you maybe make me at least more comfortable on that visibility and on what sort of sensitivity have your customers expressed to the evolution of the sort of current debt story in Europe at least? Second question also, maybe Q4 or second half related.
You said that the sort of softening of China—I don't know if that's the right word, but I think you know what I mean—has two factors, this grid constraints and then a sort of a tightening up of the financing environment, and you believe that those will pass in the second half. Particularly on the second one, how confident can you be? I mean, we've seen that these financing things tend not to go away very, very quickly, the last 3 years, and China has had a very loose financing environment the last several years. And then the last question was, and you may feel even less comfortable commenting on this one, but you have a, how concentrated is the order intake that you expect, this 3.9—sorry, 3.9 GW—in Q4, please, vis-à-vis specific customers? Thank you. Without naming them, of course.
Okay.
Well, a lot of very specific projection questions in a fragile world, but I will, I'll give it my best shot. Looking at the Q4 and the execution in Q4, as I said, we are basically covered with the orders that we need to execute, the second half 2011, so that obviously gives us very good visibility. So that is now not an order risk, but it's more an execution of having things out of the plants and in the ground so we can TOR them and get the revenues. So that is what we're looking at for the revenues and earnings in the second half 2011. It's more related to execution.
It is not related to orders because basically we are covered with the orders we need for the second half 2011, so whether that gives you any confidence or not, but at least that's how it is. When we talk about China and the situation in China, I think there seems to be this misconception about the Chinese market and how it operates. What we are seeing in China is simply that the reason for the lower order intake at the moment is first and foremost grid-related. There's been a lot of issues being debated in China. There have been talks about new approval processes for being grid-compliant, and that is some of the things that Vestas have been working a lot on.
Maybe, remember that some of the things we have been working on is to ensure how our turbines interact with the grid, and we therefore actually are a little of the opinion that even though the grid's challenge have meant that in the first half 2011 that Vestas have had a less order intake from China, which we as, as I said, do not believe is Vestas-specific, the fact that maybe the, that if these requirements on grid become much stricter, we actually believe it's, it's positive for us. Positive in the sense that we know we can be in compliance with these requirements, thusly that Vestas will be in a stronger position to be competitive in China and ensuring that our customers can get the grid compliance that they require in order to get the project done.
So we actually welcome that some of these things become more stricter, even though, of course, a little more frustrating on the first half. On the financing in China, I would say that, yeah, I mean, there has been some tightening on some of the fiscal policy, but looking at China's aspiration for the development of wind, we haven't seen that change, but we have seen a longer process time and so on, and at least when we talk to our customers, they are of the opinion that they will get this financing in place. And again, it's important that in China, you when you the turnaround time on the orders there seems to be very fast, that when you get the order from an in-for-out perspective, you don't have them sitting in the backlog for very long.
You receive the order and basically you execute quite fast afterwards, so that's how it tends to work there. On the overall order intake for the 7-8 GW, as I said, we actually are normally seeing that in the first half of the year. We normally tend to get around 40% of the orders in the first half and 60% in the second half, so it is not abnormal for Vestas to have the majority of the orders here in the second half. If we then say, "What do we base the 7-8 GW on based upon where we are?" Well, we are close to the 3 by the 30th of June.
We have then added more than 600, already announced, and then it's of course very much based upon the pipeline of projects that we are aware of, on which are either conditional or orders that we are under negotiations at the moment. And of course, looking at, we are doing this constantly together with our sales business unit, how confident are we that these things are going to move ahead, and, and that's, that's really what we base it upon.
I have to say that when we in 2010, after a very difficult 2009 with an order intake of 3 GW, said that next year we'll have an intake of 8-9 GW, I also had the feeling we were standing a little alone with this opinion, but actually we came in with 8.6 GW, and it's exactly the same kind of methodology and review that we have been doing this time around. Of course, if we have a complete breakdown in financial markets or whatever, then that will have an impact, but if I look at what our customers are saying us today, we still believe there's good reason for the 7-8 GW.
Mads Peter Søndergaard, ABG Sundal . Just in relation to China, there's news out recently that turbines in China will be required to have low-voltage ride-through capabilities.
Just whether you can comment on whether Vestas turbines installed in China already have this capability, if not, how much, how big and expensive it will be to alter that. Then secondly, you state that revenue risk for the second half is mainly related to operational risks stemming from production and installation of new turbines. If you can just try to add some more flavor on exactly what that added risk is. Thank you.
Sure. If we start with the low-voltage ride-through, you're right, that is what has been worked on. Our understanding of the requirements that we need to be in compliance with is something that we know Vestas will be, so we will be able to get, as we know them today, to be in compliance with these low-voltage ride-through requirements that is being put up by the regulatory authorities.
So as I said, it is a time-consuming issue, but we don't believe actually we believe it will be more positive, even though it has delayed the order intake. So we believe that Vestas will be in order to be in compliance with those requirements as we know them today, and it's something we have been working on, in China and together with our technology department. But if you look at the execution risk, for the second half, just again on the recognition and how we have done this thing in the past and how we're doing it today. Before the accounting change, we were basically obviously recognizing the revenue as we were shipping the turbine out of the plants.
As I said, under the old system, we would actually even if we were not being able to finish the project and have the installation and TOR in place, we would still be able to take the revenue as we were going along. Now, after the accounting change, it means that it's going to be the last one, over the line which can determine whether or not, part of a project or full project is going to be TOR. Therefore, seen from an order coverage, we don't think it's an order problem. It's an execution problem, and therefore, of course, we are dependent on can be matters outside our own control, bad weather, other issues which can delay, which then will have an impact and thusly will come afterwards if that should happen.
So that's why that is the execution which we are related to because these are some of the matters that can determine whether a project is going to be taken over by a client or not. But you see execution risk being higher than normally, due to the higher rate of new turbines?
There's nothing different from what we said in the first quarter when we said it was back-end loaded, but I have just felt that sometimes from discussion I have with people, people tend to forget this, and that's why we this time around just said, "Please remember that that is how it is as a consequence after the change of the accounting principles, unlike before when it was more a question of shipping things out of the factories." If there are last question in the room, then we will turn to the phone.
Mark Fielding from Citi again. Just a couple of follow-up questions.
Firstly, as you move through the sort of V164, can you give some thoughts on the future direction of R&D spend in the business and whether you would expect it to stay at current levels just in the context of the fact that obviously you're capitalizing a lot of R&D right now? I'm wondering when the cash and the P&L will actually match up from that side. And secondly, just the order value per megawatt in the second quarter was obviously down significantly on the first quarter, and just trying to get a feel of what the pattern is and what you think the real underlying level is on that.
Oh, well, it sounds like that, or I hope we'll see each other in November because I'm sure there we will talk more about how the development is going to be in the coming years, also in relation to the V164, so I don't think I will comment on this today. When you look at the development of the average prices, again, one has to be careful here with the composition, with the currencies, and how this is evolving and the mix and so forth and so on, and therefore there will be, and I think we have shown on previous charts how much they can vary, if you go back to, I think, fourth quarter last year where it was significantly higher.
So we are seeing variations between, between the quarters, and, we have not over the last quarter seen, dramatic changes in the pricing picture, in the second quarter overall compared to the to the first quarter. And just in that context, if, if you've not seen dramatic changes, are we are we still are you saying the pricing is still relatively similar today as, as it was sort of middle of last year just in the context of, obviously, input costs having risen? Or, or has it risen with that? I can't remember. I can't remember what it was. Actually, I think, in the middle of last year in Q2 last year, it was very, very low because that was when we, amongst others, had our EDPR order in the backlog, so that was a very low Q2 last year was very low.
My only point is there will be variations depending on the projects that we are executing, so I can't recall all the figures from last year, but at least when we look between Q1 and Q2 this year, we have not seen major differences. It is still a competitive market, but we have not seen major differences between Q1 and Q2 this year. Thank you. Okay. So operator, let's go to the phone.
Thank you. If you have a question, please press star, then one on your touch-tone phone. Patrik Setterberg from Nordea is on the line with a question.
Yes. Hello. Patrik Setterberg from Nordea Markets. I have a following-up question to your mix effect in the second quarter. You're mentioning that the mix that the mix has benefited your margin positively in the quarter.
I just want to get a little bit more sense about this. Is it a better mix among your turbines or a geographical mix, or has the service level been particularly good in the second quarter?
It's of course both a turbine mix, but it's also a geographical mix that is doing that. And I think, as I mentioned, at one of the questions previously, that in the first quarter 2011, we were also having some specific low projects that we were having TOR on in the first quarter 2011.
Okay. Thank you. And then another question regarding your framework agreements with EDPR and ML. Could you please provide us with an update of how many MW you have delivered to these customers?
It's not something that we make public available.
That is the difference between the, let's say, frame agreements and, for instance, the non-frame agreements like with EDF, so we don't publish how much of that has progressed.
Just a follow-up to that one. If they're going to utilize their option, are you going to communicate this to the market?
Sorry. Say that again.
If they're going to utilize this option of 600 MW and 1,000 MW, are you going to communicate this to the market?
Yes, but the option on the EDPR actually expired by the end of last year, I think it was. So the option is unfortunately not relevant anymore. It is the 1,500 MW.
Okay. Thank you.
You're welcome.
Br ian Gamble from Simmons & Company is on the line with a question.
Hi, Ditlev.
I wanted to talk about the service part of the business for a minute. Any reason to believe that that part of the business shrinks as you move forward with the new turbines, the V112 and V100? If you take the existing fleet, it seems like that 15% might continue to grow for the next few years and then may stabilize itself at a percentage. Or do you believe that you guys can continue to grow your service side just based on the you know the global network of turbines that are installed and your expertise within manufacturing and then service side itself?
Again, I would say, we're a little bit back to the presentation in November of how we're seeing the development in the coming years, but, irrespectively, let me say that when you look at the lost production factor, which is, of course, absolutely essential for our clients, it is a combination of a number of factors. The turbine is, of course, an important part of it, but it is not all of it. Therefore, the operations and keeping the O&M cost as competitive as all possible is, of course, an important part of this. And that's what I, as I mentioned in the presentation, that service is being recognized even more of how important it is as, securing the lowest cost of energy for our clients.
With the people that we have today, working for Vestas, in there, and also when we look at the complexity of the turbines going forward, I'm absolutely certain that service is going to remain an important part of the development of the business activities for Vestas, but also in order to further strengthen the relationship with our clients and helping them to get to the best possible business case.
Great. And then secondly, obviously, all of your projections are based on a market that remains, you know, fairly stable, and we don't go into any sort of double dip recession either in the U.S. or globally. Ditlev, you travel all over and talk to all sorts of people.
I'd love to just get your broad strokes opinion on what you think is going to happen given the volatility over the last several weeks. Well. I know it's a little bit simple question. Just love to hear your opinion. It's a big question.
I don't know, Brian. I would say that I think that if we just look at some of the macroeconomics, and especially related to energy, then, despite the uncertainty in the world that we have at the moment, when we had that uncertainty in the world just a few years ago, we saw the fossil fuel prices basically collapse. If you look at the uncertainty we have at the moment, we haven't really seen that.
Therefore, if you look at the, let's say, robustness on the energy matter, I think it is pretty robust. And therefore, on top of this, of course, we had this very unfortunate tragedy in Japan. We've already seen that impacting legislation. We haven't seen any countries that have given up, on their for instance, in Europe, on the 2020 targets. I haven't really seen any of the states in the US that have given up on the renewable portfolio standard despite this. I've actually seen in Australia that has introduced a carbon tax. And therefore, if I try to bundle this into macroeconomics, I would say I'm not an expert on what the world is going to do.
I'm sure there's a lot of economists that are 10 times better on that, but at least what we are reflecting on, that despite this uncertainty, we all understand, we at least haven't seen within the energy sector that somebody have dramatically changed their plans compared to what was announced before this uncertainty fairly started to escalate.
Excellent. Thanks, Ditlev.
You're welcome.
Patrick Hummel from UBS is on the line with a question.
Yes. Good afternoon. There's a few questions. First one, I think I was getting my answer off the margin of new full orders, compared to what you already have in the backlog for what you guys are doing.
We have a very bad connection. It's very difficult to hear you.
Is it better now?
A little bit.
Okay. Just repeat what I said.
In terms of the emerging quality of your new orders, I think you acknowledge that on the one hand, you have upward pressure from some components. At the same time, you see in your order backlog that the value per megawatt is going down, but then you finally have a shift to the higher-end product, which I guess should be something positive for your margin.
It's not really Patrick, it's not really helping. I'm really struggling to hear what you're saying. Okay. Let's give it a last shot.
Okay. I'll give it a final try. Otherwise, I just re-register again. Okay. In terms of the margin of your project. Mm-hmm. That you currently book as new orders, there are basically three factors going in different directions. Number one, input costs for some components are going up. Number two, there is fierce competition, which suggests pressure on prices.
But number three, you have a mix shift in new orders at least you're guiding towards, higher-end product order intake in the second half of the year. So I was just wondering if you could give us your best guess, what the underlying margin quality of your projects that you will book as order intake in the second half will be. Do you think it can be stable overall, or is there risk that the margin quality deteriorates? And, thank you,
Patrick. I'm, I'm really sorry. I simply cannot hear what you're saying. I suggest that you give a last repeater call later on, and then I will get back to your question. I'm sorry.
Okay. Thanks.
Hi. Faisal Ahmad from Handelsbanken is on line with a question.
Right, gentlemen. This is Faisal Ahmad from Handelsbanken Capital Markets.
I think I'll try and ask the same question as my previous colleague. Basically, the margin quality in your backlog, how has that developed in Q2 given the input cost pressures you have and the fierce competition you're experiencing, counterbalanced by the new products you've had on execution of the project?
Was that what you asked?
No. Basically, the margin in the orders which you have secured, how has that developed considering the input cost pressures you've experienced and the fierce competition you've experienced?
Mm-hmm. Mm-hmm. Well, for the orders in the backlog, I mean, there the terms and conditions are agreed. And normally, what we have in the contracts, of course, also related to in some cases, there can be passing on of some of the cost related to that.
So, I would say from the order backlog, there is not a real change here. If there's one area where obviously we have seen a significant increase on cost, it has been on rare earth materials. Now, Vestas has very, very little impact, for instance, on rare earth materials, due to, but we do have it in the V112 on permanent magnets. But otherwise, the rest of the input cost we have, they are, as we also mentioned, they are higher this year, but we haven't seen, let's say, dramatic impact from the input cost apart from what I just mentioned. So, from the order backlog that we have in there, we don't see a big impact there on the margins for those orders that w e already signed up.
So the contribution margin on the orders secured in Q2 has been on a similar level to the backlog which you had at the end of Q1?
I can't remember exactly what we had in the backlog after Q1. But I think as it was previously mentioned, in Q1 and Q2, we are, as I previously said, in a competitive pricing environment. But if I look at the pricing in Q1 and Q2, we have not seen any major deviations overall in Q1 and Q2.
Okay. And then just another question on your backlog. Could you just help us out in how much of the backlog which you have secured at the moment is for delivery in 2012?
We do not give the timeline for the backlog.
So, but as I said, for execution in the second half of 2011, we are nearly almost covered for the second half of 2011, but we haven't talked about the timeline for the rest of what we have in the backlog.
Okay. That's all, Ditlev.
Thank you.
Daniel Patterson from SEB Enskilda on line with a question.
Yes. Thanks. Daniel Patterson here. A question on the employee layoffs that you announced nine months ago. You're also talking about you're looking into the shared service centers here in the second quarter. What's the status there of sort of all the benefits now seen? And we should not expect a number of employees to fall from here on. What's the status?
Well, on the shared service centers, that is progressing according to plan.
Going forward, there are not going to be any, let's say, significant deviation because of the development within the shared service centers. All right. That also means that the number of employees for the group should be more or less stable in the next few quarters? Yeah. As I said, we don't have any plans, apart from obviously we will, we are executing a lot of orders here in the second half. So, of course, specifically in the installation business and so on, we will have quite a high activity level. But in the overall composition of Vestas, so to say, we don't expect to have any major changes there in the overall setup as such.
All right.
And then on Net Working Capital, you are stating that you should see a decline in Net Working Capital in the second half to benefit cash flow. I just want to be clear here. Is this mainly just sort of flowback of in-progress orders, or are you trying to structurally reduce your Ne t Working Capital?
Well, on the Net Working Capital, we obviously have had a positive development on the inventories. There is no doubt that our make-to-order principle is also helping us here to make sure that we bring down the overall inventory level. It's important also to remember that part of the inventories here are also projects that are under installation going forward. But that is something, as was also mentioned on Net Working Capital, we do expect to see that we will be capable of bringing down the inventories further.
Secondly, hopefully also with the order intake that we do expect in the second half, and down payment and so on, hopefully, it's going to help us also further on, on that front, in order to improve the net working capital.
Okay. Excellent. Maybe one final question. On the U.S., do you consider Vestas the low-cost producer in the U.S.?
Low-cost. I, I, I don't like the word low-cost. I think Vestas is very competitive, in our setup in the United States.
If I look at the competitiveness that we have in the U.S. market today, due to the manufacturing facilities, if you look at how much we actually have handed over in the second quarter in the U.S., of projects, and if you look at the pricing, competitiveness in the U.S. market, it is clear from my mind that if Vestas had not gone in full throttle into the United States a while back and maintained that policy, we would not at all be in the United States market today. But we are thanks to the product offering, the U.S. dollar-based. And when we make the calculation today, we cannot be competitive, we believe, in the United States out of Europe.
So you can say, "Yes, we are competitive in the US." And it has been a very important, let's say, move for us that we took this decision. Otherwise, we would not be in the US today. But today, I do believe that we are well-positioned, both thanks to the products, but definitely also thanks to the people we have in place now.
Excellent. Thank you very much.
You're welcome.
Claus Almer from Carnegie is online with a question.
Yeah. Hello. When you look at your rolling 12-month EBIT margin, that jumped to above 9% in Q2. How should we compare this amazing level to what you see in your order backlog?
I don't know exactly how. I have not done this calculation on this development.
But as I mentioned, the EBIT or EBITDA here in the second quarter, also again, is due to the composition of activity and mix in the second quarter. Okay. And then my second and final question, that's about your delayed depreciations. This will, say, give a buffer of EUR 30 million in the second half of 2011, but you did not adjust your guidance for the full year. Is that just—I mean, it's too low a number to be reflected in the guidance, or how should we read this? You know, it's when you put all this together and have all these projects going to happen, that needs to happen in the second half and so on, I think your ladder is the right one.
You're right that this is thanks to the additional EUR 30 million; there's a little more buffer here. But if you look at the totality going forward, you can then call it a buffer, if you like. But we also know that there are a lot of things that needs to fall into place in order to get to the 7. So if you want to characterize it as a buffer, then we'll do that.
Okay. Thanks so much.
Martin Prozesky from Sanford C. Bernstein is online with a question.
Good afternoon, Martin. Thank you from Bernstein. A few questions, please. The first is on the shipment, the sale and delivery costs, in the P&L. The number's slightly down quarter-on-quarter, whereas both shipments and deliveries were up quite significantly.
Can you just help me explain why that happened? Is it that you are shipping more in-region and therefore kind of shipment costs, ocean lines are down, or what you know, what's driving that, relative decline? The second is the finance costs also seem pretty low compared to history and compared to pretty constant debt levels. Can you also just help me explain what is, you know, is, what's going on there? Is it related to the change in the financing conditions? And then lastly, link to that, when you said you've got excess headroom on liquidity, can you just comment or kind of expand on that comment a bit, please?
Yep. Okay.
If we start with the last question, then on the new revolving facility that we put in place here in the month of June, then I think it's just to say that we, with a free cash flow above zero for the full year 2011, we just would like everybody to understand that thanks also to these facilities we have in place now that Vestas have also financially a big operational freedom. And also coupled with the bilateral facilities because we tend to get some questions about Vestas's overall financing structure. So we just wanted to make sure that everybody understands that with this in place, how this will look like, hopefully by the end of the year by reaching the overall cash flow projection for the full year.
When it comes to the questions on the financing, then I would say, we have, in the first half, we have some positive adjustments on currency that is having a positive impact on the overall financing cost. We obviously still also have interest cost, but there has been some positive impact on currency regulation, which is actually then showing quite a low number on the overall financing. And then, your first question was related to? And the distribution and sales cost, the fact that the. Let's be honest, sales cost. Well, it's clear that the fact that we are in the region for the region is, of course, helping us on overall lowering our cost. And I would say also the competitiveness, or, within transportation in general is, of course, also helping us.
So, but again, there can also be variations here between the quarters. But overall, I would say, yes, we are, also here seeing, a benefit from being in the region for the region.
Thank you.
You're welcome. I think we have for the last last question.
Maurice Rosenthal from ING is on the line with a question.
Yeah. Hi. A couple of questions, please. First of all, could you please tell us a bit more about the decision to postpone CapEx to the second half of the year, as well as the nature of these investments, including geographies? Secondly, the EUR 30 million delta at the D&A level looks rather high. So I was wondering how much of that number comes from less capitalized R&D being amortized.
And then finally, perhaps on pricing, the price per megawatt fell quite sharply quarter-on-quarter, despite a high share of smaller unannounced orders in the mix. So what would be the key explanation for this? Thank you.
Okay. The nature of the CapEx is basically related to the timing of the execution of the projects and the fact that when things basically are going to be put in place for some of the facilities that we both within manufacturing and also within technology were expected to put in place in our original forecast when they are happening now. So it is more a, let's say, a delay, as such, but nothing else than that.
And as I mentioned earlier, we still expect to consume the amount of EUR 850 million by the end of full year. So it is more coincidence than anything else. When it comes to the R&D and the capitalization of the R&D, then obviously, as we are moving with, for instance, putting a new technology like the V112 into manufacturing, then as it goes into serial production, we will start to have an impact there, going into the P&L from the R&D. On the orders and the unannounced orders, again, it is, as I said, not a specific intention on Vestas on trying to deviate on what has been sort of the pattern in the past of how much have been announced and how much have not been announced.
There are also sometimes cases where we have customers who prefer that unless we have to because of the stock exchange rule, that these orders are not being announced, and then they just go into Vestas backlog. So again, these are some of the variations that there are when we are executing quarter after quarter. So I know it's not helping you for trying to sort of make a projection exactly how it's going then to be unannounced orders next quarter, but these are just some of the things that happens in our daily life.
Okay. And perhaps a follow-up on the EUR 30 million. Could you perhaps give a sort of indication of the split? What's, you know, tangible CapEx related and what's R&D related? Would it be 50/50, or?
I can't remember what the split was between them, but I think we have already mentioned, from the 850, how we believe they are going to be composed between tangible and non-tangible. I think it's in the announcement.
Yeah. No problem. All right. Thank you.
Thank you very much. With this, I would like to thank everybody for tuning in today. A special thank you to all of my colleagues at Vestas. As I said, next time we will be in Aarhus in Denmark for the Q3 and also for the update on our Triple 15 aspirations. I hope as many of you will turn up and see us there. Thank you very much.