Vestas Wind Systems A/S

Good morning and welcome to this release of our Q1 2024. A quarter that is the continuation from our 2023 progress overall. And thanks also here again to our stakeholders across from support throughout the first quarter of this year and therefore keeping momentum towards the remaining part of 2024. So with that, let's go to the key highlights of the first quarter. So we had a revenue of 2.7 billion. It's a small decline of 5% year-on-year, driven by lower activity in power solutions, partly offset by a 12% growth in the service business. The EBIT margin ended at minus 2.5%. Disregarding the sales of the technology in Q1 2023, EBIT improved year-on-year due to the higher project profitability, as we will talk more about. The order intake in Q1 was 2.3 GW. The order intake declined by 30% year-on-year, partly also due to the very strong finish in 2023 in Q4. Solid capital structure. We improved earnings and they are the main driver for a leverage of 1.1 times net debt to EBITDA compared to 5.8 times a year ago. And Hans will talk much more about that. And the investors continues to lead the industry through commercial discipline. Vestas maintains the leading position in the global market, and we will definitely also talk more about that. So with that, let's have a look at how we see the business environment currently. So in the business environment we talk about here, the industry maturity, also how we act through the core circles of influence to power the energy transition. So if we look at the global environment first, I think it's obvious that raw materials, transport costs are either trending down or remaining pretty stable. That also said, we also see that the underlying wage inflation are remaining high and becomes more and more sticky. Geopolitical volatility, I think it goes without saying that the world is having geopolitical uncertainties. And to some extent, the other side of that coin is that it also highlights the need for keeping the development of energy and energy capacity and not least energy independence for many parts of countries around the world. Inflation and interest rates are still high, and we sort of think that's a negative for some of the projects that have been in the backlog or, for that matter, in the project priority. But at the same time, it also increases everyone to remain more focused, more disciplined in prioritizing the right projects. If we then look at our market environment, I think the grid investment prioritized in key markets, we see more and more of that positively. We also see that the permitting are improving in certain markets and therefore it's only right to reach out and give praise when praise is due. And Germany, UK on onshore and not least also the US are picking up and picking up fast. But overall else, I will say still we see permitting, we see auctions, and we see grid are still being challenged across our five regions across the world. When we get to project level, I think positively here, we will say that the supply chain disruption are improving more or less the same as what we also finished in 23. So we see a little disruption, which is positive. Yes, we have had some Red Sea, but through great partnership collaboration, we are able to mitigate some of that and work through it. So if it's what we see now, it shouldn't affect the year. But again, what we also say here, positively on the site and the execution in factories right now, we really benefit of that. Then when we see also for the rest of 24, we have continued the execution of our low-margin projects. Those are the ones related back prior to first half of 22. And of course, those low-margin projects will be concluded by the end of this year in 2024. We are now also at the time of the year where we will look at how does it look for the market shares in 2023. And there we will say Vestas continues to lead the industry. If we look at it, the global installation decreased slightly from 40 gigawatts in 2023 from 41 gigawatts in 2022. Vestas maintains a leading position. You'll see we're slightly up from 28% to 29% in the chart to the right. And here I will say probably a little bit against expectations. We didn't see the installation increase in a year like 2023, where we even had a year to plan for it. I think also here industry maturity is improving. We see developers, we see turbine suppliers are being more selective and focusing on building high quality value creating projects. I think that is a very, very important scenario that we combine those many factors and therefore also work closely with the off-takers and governments locally to get capacity and the energy transition running at a higher pace. I will also say here, still we see from time to time certain governments taking short-term opportunistic choices, especially in auction design and others, but I'm sure we'll get many opportunities to have those discussions in the coming quarters and in the coming years. With that, back to the business and how we look in power solution. So Q1 2024 was a lower order intake year on year due to a very strong finish to 2023. The order intake in the 2.3 gigawatt, that's down 30% compared to last year in Q1. The main reason for the decline is lower order intake in Americas, where Q1 2023 was impacted by the 1.3 gigawatt deal with Casas Desventos in Brazil, and the fact that Vestas has secured very strong order intake in the U.S. in Q4 2023. A quick comment here is that we ended in 2.3 gigawatts, but we also said we ended at 8.2 gigawatts in Q4 last year, which sets a little bit the tone of how two quarters deviate from ending 31st of December. The largest order in this quarter was a 554-megawatt order in the U.S., which again will employ Vesta's latest technology high-capacity factor turbine, the 4.5-megawatt V163. The total ASP was stable around 0.97 million euro per megawatt in Q1 compared to 1 million euro per megawatt in the prior quarter. Quite pleased with the stable of ASP and quite pleased also in this order of magnitude in this quarter considering both where and also the scope of the order intake. With that go-to service, good start of the year continued into 2024 with high customer satisfaction. So the service order backlog increased to 34 billion from 31 billion a year ago. The inflation indexation remains a vital mechanism to protect backlog profitability and also keep running the business in the right way. We had a good start of the year with high customer satisfaction. NPS increased to 58 and continued under very high activity levels across our major markets. We also in this quarter had a regional validation of contract data that showed some premature inclusion of not yet active contract e.g. projects at start of construction rather than start of service. The validation led to a 2% reduction in gigawatt under service and has no effect on customers, employees or the value of the service backlog. Of course, we apologize for that, but I think here a couple of our business units had been too quickly affected. on that bottom so therefore at the end of q1 business had 149 gigawatt under active service contracts which i'm sure we will also see in the breakdown off to the right we have a backlog of 34.4 billion in service of which 29.6 comes from onshore we had 149 gigawatts under active service contracts of which 142 is coming from onshore and again average years of contract duration still above 11 years, which is, of course, very well done by the service colleagues around the world. With that short view into Vestas development, I will say a rather quiet quarter after a very busy end of last year, and again, an enormous focus on high-quality projects with a high discipline, considering also the macroeconomics of interest rates and inflation around. In Q1 2024, Vesta's pipeline of development projects amounted to 30 gigawatts, with Australia, US and Brazil being the countries with the largest project pipeline. Early stage projects of approximately one gigawatt exited development pipeline in Q1. This was offset by one gigawatt of new projects during the quarter, which also means that when we look at the total project pipeline, remain stable at 30 gigawatt. We had zero megawatt in order intake generated, not unusual for a first quarter where people are planning throughout the year. And then we saw a new secure pipeline of approximately a gigabyte as mentioned. You will see the breakdown between the regions in below. Then to sustainability for Q1 2024, Vestas remains the most sustainable energy company in the world. And if we then look at the major KPIs we show you every quarter, the lifetime CO2 avoided by produced and shipped capacity decreased by 2 million tons from Q1 2023 due to lower produced and shipped turbines in the quarter. Carbon emission from our own operations increased by 12% as we saw higher activity levels in both offshore service and offshore construction, leading to increased fuel usage. Just wants to point you here that when you look at those graph, on an LCM basis, this represents 108,000 tons of CO2, which is not materially considering and comparing up against the scope three. So scope one and two for Vestas is 108,000 tons. We're working diligently with it. But I think the much more important is our attention into the scope three, which represent 99% of actually the carbon emission of Vestas. When we then look at the safety in the end, number of recordable injuries per million working hours declined 9% compared to last year. Always deviations, this is in global average. Of course, we are pleased to see it drops 9% to 2.9. But again, with a number like this, we are never satisfied at the level we are at. So therefore, we still have a view and attention to arriving, working, and returning safely from Vestas. And with that, I would like to pass over to Hans for the financials.

Thank you, Henrik. And as usual, we start with the income statement, where I'm pleased to say that our underlying margins, they do continue to improve. Revenues decreased 5% year-on-year, roughly 150 million euros. This was driven by lower delivery volumes, but offset by higher prices on turbine deliveries and also by growth in the service segment. Despite those lower revenues, gross profit actually increased by 30 percent to 244 million euros. In other words, we had a 2.5 percentage points improvement there, showcasing really, I think, our commitment to continue to put value over volume. EBIT margin before special items was minus 2.5%. This was in part due to seasonality in a slow first quarter, which resulted in low fixed cost absorption as a consequence of that. Return on capital employed improved to 1.6%, as we see that the earnings recovery continues to move on. Taking a bit into the power solution segment then, we can see here that our revenues decreased by 12% year-on-year, primarily driven by lower delivery volumes in the EMEA and Americas region, and specifically we had quite low deliveries in the U.S. in the quarter. This was then offset by higher average pricing. EBIT margin before special items were negative 9.5 percent, but actually up 0.4 percentage points year-on-year when you disregard the income we had from the sale of technology, our converter and controls business, that was carried out back in Q1 2023. Importantly, as I said before also, our profitability continues at steady improvement, but it is held back by execution and the completion of the low-margin projects that you also mentioned before, Henrik, that were taken in particular before mid-year 2022. These should be largely completed when we get to the end of the year, and we'll then be starting out 2025 in what you could argue would be a more normalized type of situation. Turning to service, we see growth in both revenue and earnings. Service generated an EBIT of 192 million euros, which corresponds to approximately 5% earnings growth. The improvement was driven by higher contract activity, inflation and inflation, but also by a slight increase in transactional sales. All of this then offset a bit by currency headwinds of about 2%. That takes us to the net working capital, where it increased in Q1, driven by an increase in inventory levels, high levels of supply payments in the quarter, but partly offset by the down in milestone payments that we have seen in the power solution segment. I think it's fair to say that net working capital reflects the typical seasonality that we have in our business, as we build inventory for high activity levels in the second half of the year. So, in that sense, the inventory levels you're looking at here, for instance, or the development in the inventory is something that I think in terms of level of direction that we've also seen in prior years here in Vestas. That takes us to the cash flow statement, where we had an operating cash flow of minus 755 million euros in the quarter, actually an improvement compared to last year. The improvement was driven mainly by better underlying profitability, but also by less of a drag, of course, from the net working capital built that we had in the quarter when you compare to last year. Adjusted free cash flow in the quarter was minus 907 million euros, which is an improvement compared to Q1 last year. Again, mainly driven by the better underlying profitability that we have had. Investments totaled 198 million euros, and I would like to highlight here that we, of course, continue to invest into our V236 offshore manufacturing footprint, in particular in Poland, where our nacelles facility that we are currently building is planned to start operating in early 2025. We've also announced our blades facility there, which is expected to be operating, come into play from 2026. But allow me to also highlight that we are also investing into onshore manufacturing footprint in the U.S., where the order situation, of course, and the good commercial traction that we have observed has made us go into those types of investment because, of course, we see that as something that is going to provide some value for us. That takes us to provisions in LPF, where on the LPF, whilst it is still at an unsatisfactory level, I can say also that we continue to see that it improves in Q1 2024. That's what you can see there to the right-hand side. Warranty cost amounted to 121 million euros and a quarter, equivalent to 4.5 percent of revenue. This is down from the 5.3 percent that we had in the full year last year. Finally, turning to the capital structure slide that we always have at the end, I'm pleased to see also, and you referred to that already, Henrik, in one of the prior slides, that our improved financial results are leading to a lower multiply of 1.1. compared to the 5.8 that we were at last year. Back then, we also said that this, say, expected improvement would be a function of our continued journey back to higher profitability. But of course, it's nice to see now also that the numbers are also leading exactly to what it is that we were talking about back then. As a final comment, let me highlight that we have an investment grade rating of BA.2 from Moody's with a stable outlook. And speaking of outlook, back to you again, Henrik.

Thank you so much, Hans. And as we also said here, outlook for 2024 year and Q1 has started as we largely expected it to do. So therefore, revenue for the full year expected 16 to 18 billion euros. The EBIT margin before special items, 4% to 6% services expected to generate an EBIT before special items of 800 to 880 million. And then we expect to have a total investment of around 1.2 billion euros, as you can also follow from Q1. Else, as we also discussed this year, 2024, will be not linear between the quarters, as you can see, but we are quite pleased with the start of the year and also the remaining three quarters we are looking into. So with that, thank you so much for listening in, and I will hereby open up for the Q&A.

Anyone who wishes to ask a question will press star and run at this time. The first question comes from the line of Akash Gupta, J.P. Morgan. Please go ahead.

Yes, hi, good morning. I have two, please. The first one is on produced and shipped turbine in the quarter. So this 2.6 gigawatt is down 11% year-on-year, while your turbine backlog has increased to 27 billion almost, versus 20 billion euros a year ago. Could you please provide what is driving this decline? Was there any, like, you know, any planned activity in terms of investments that was a headwind. And on the same topic, shall we expect this slower level of, weaker level of produced and shipped turbine to be a headwind for second quarter revenue as well and expect more back-end loaded this year?

I can take that, Cass, and thanks for that. No, you can't read anything into that. It's just how the year is panning out between quarters, so you can't say that. We said all along the year will be back and loaded. You can also see that in the numbers. And you will also pick up from a fact that you have hardly had any deliveries. There were 15 megawatt booked down in the U.S., and that's not deliveries in the U.S. As I said, it's nice to have memories, but sometimes memories are short. We didn't start taking any orders in the U.S. until we were in the back second half of last year, and therefore that ramp-up is ongoing. You will also be able to see it on the employees that are getting on our payroll right now. No worries with that, and you shouldn't read more into it than we're just going through the year. We're executing patiently on the backlog we are having, also on some of the lower margin. So, therefore, the year will be variable, no linear of the four quarters.

Thank you. And my follow-up question is on service margins. That were a bit of disappointment in the quarter while your revenues were came in ahead of expectations, growing 14% year-on-year in constant currency. I wanted to ask if this lower margin recovery in service, which was down 140 basis points year-on-year, is driven by impact of service contracts where you share risk-reward with customers, or is it driven by new service models that could be initially dilutive for margins? And maybe on the same topic, for the full year, you don't give us a margin guidance, but taking the Q1 base into account. Can you give us some indication on what shall we expect on service margins for the year? Thank you.

Yeah, thanks, Akash. So I think it's... If you look at the margin there, of course, factually, as you point to, there is the difference compared to Q1 last year, but at the same time, it's always a bit difficult to compare Qs on Qs. It doesn't take a lot of, say, millions. It's basically low single-digit numbers that can lead you to different types of conclusions. As we said, we see the activity levels being a consequence of, say, the higher contract activity we've had... And then we also saw some additional transactional sales. But all in all, I would not at this stage in the first quarter read too much necessarily into something that gets impacted only by, if it's like five or seven million euros, that would lead to perhaps a different conclusion than the one that you're looking at here. For the full year, we maintain actually the margin guidance we have in absolute terms, 800 to 880 million euros. And as we also said when we announced it back in the full year, back in February, it's a reflection of the fact, say, how we drive the business in terms of focusing on EBIT, and that we have maintained. So that is unchanged for now.

And maybe just an additional comment on we haven't changed any of the modeling in the service business. The business is performing very well, and therefore there's no need to have that discussion, as you can also read in to some of the feedback from the NPS of customers.

Thank you, Henrik.

The next question comes from the line of Deepa Fankiteswaran, Bernstein. Please go ahead. Thank you.

Thank you for taking my call. I have two questions. The first one is just on, again, maybe a repetition of the previous one, but could you highlight if anything has changed versus your plans for how Q1 has panned out? The market seems to have reacted quite strongly to today's results. So from your sense, the cadence of deliveries, the cadence of loss-making projects in the first quarter? Has anything sort of changed? And therefore, should we be anchoring ourselves to any particular point in your guidance for FOLIA? That's my first question. The second one is a bit more on offshore. So you've seen one of your competitors has, in the U.S., pulled back from having a very large model 18-megawatt turbine, which led to the cancellation of several projects. I was wondering what are the implications of that for you? Would you consider, I know there were plans at some point to look at a factory in New Jersey. Could you talk about whether this has any kind of implication for you in terms of how you might be looking at further projects in the U.S. or not? Thank you.

Thank you, Deepa. If I take the seasonality first, of course, I can't answer if you are getting worried, but we are not. We are executing on the backlog as we planned and as we also said here. We see very low disturbance coming from Q4 into Q1, which we welcome a lot. So therefore... We actually executed on what we planned to execute for. But that is also a good hint to everyone that our second half of the year will be busy and as busy as we normally see with an overweight in second half of the year versus first half of the year. Then you will also appreciate when you have only shy of 1.8 billion in turbine turnover in Q1, then you only need a few of those projects to be deviating in margin to get that, bar also that, of course, €1.8 billion is not enough to all dilute the fixed capacity and the depreciation. So, actually, we are quite pleased with the start of the year and the execution to plan. On the offshore, especially in the US, I welcome the industry taking decisions that benefit also what is good for the individual companies. And therefore, when it comes to offshore, we are very few companies looking at projects and we are very few companies talking probably to the same developers. So therefore, I will leave that out of a global call to discuss strategy and others. But I welcome overall that there seems to be a growing maturity and discipline from all three partners in the triangle. which represents the governments or the states, or for that matter, the developers and, of course, the OEMs. And that triangle has to work, and it only works if the angles are approximately equal size.

All right.

Thank you. Next question comes from the line of Christian Thome, SEB. Please go ahead.

Yes, thank you. Two questions from me as well. So firstly, on the power solutions, you highlight an EBIT margin improvement of 0.4 percentage points year-on-year. So obviously, this rate of improvement is somewhat lower than we've seen before. In your view, can this entirely be explained by the substantial decline in deliveries, or are there any sort of underlying headwinds on the execution or completion of low margin projects, which you should be aware of.

No, Christian, I think overall it's not something I would read too much into either. You see fluctuations in quarters and you point to some of the things that we are looking at. For us, the important thing is that we are looking at the under-absorption that we get from having the type of revenue that we have. But, I mean, all in all, we are happy to see that we continue to see progress. And if you look at the gross profit that we have also had in the quarter, that improved, as I mentioned before, by 2.5 percentage points. So from our side, we see the power systems development as moving in the right direction right now. Yes, on the face of it, it looks like a small number. But then when you understand some of the underlying factors that goes into it, it's not something that we would read too much into.

Understood. Very clear. And then my second question is on your warranty ratio, 4.5% trending towards 3%. Obviously, I mean, looking ahead, should we expect a continued trend downwards or is there any risk of volatility here so we could see sort of a step up in the warranty ratio next quarter?

As we've said for a while, of course we would like to see that it continues to come down, and that's also what we're working on. At our end, when you look at the 4.5% we have in the quarter, that is down from the 5.3% that we had full year last year and the 6.4% we had back in 2022. So we are seeing, I mean, if you compare to the two prior years individually, then we are seeing a decline down to the 4.5. We continue to work with it. And as we've also been talking about, we would like to see it come down, of course, further to the 4.5% that we had already in this quarter. And I think one important thing to mention is that we are not seeing any very big new cases coming up. Then As Henrik said earlier on in another answer, it's a small quarter. So, I mean, you can quickly read a lot of into, say, small percentages, so to say. But when you do that on the back of 2.7 billion euros of revenue in a small quarter, then it gets a little bit tough sometimes to get to very firm conclusions.

Understood. That was all of me. Thank you.

The next question comes from the line of William Mackey. Please go ahead.

Thank you very much for the time. Good morning to you all. So my first question would relate to a little more color on the legacy contracts. It's encouraging. You're expecting a clean 2025. But could you, I know you haven't in the past given much, but could you give a flavor of the importance of legacy contracts in the Q1 and how that develops progressively through the year. I'll take it one at a time.

I think we've given as much guidance as we are comfortable giving in previous, because if you look at a quarter like this with shy of 1.8 billion from the turbine, you only need one or two of those projects coming before or after end of March, William. So in overall here, we said all along it's not going to be linear projects. So therefore, the average leads to where we would like to end for the year. So you'll see some of that. And of course, the longer, just from a time and execution point of view, the longer you get in the year, of course, the better we should be suited for it. But there will still be across the four quarters projects that sits from that time, as Hans mentioned, prior to first half of 22.

Thank you. And the second question relates to perhaps a bit more of a spotlight on your America's market. Your US peer was hesitant about the pace of order signings going into Q2, Q3. I mean, how do you see the pipeline evolving in the USA? And how quickly do you envisage that can transition into firm orders?

With my success in the previous quarters of predicting auto uptake for single quarters coming, then I will probably refrain from that and you will all appreciate that. We see good connection with customers. We have advanced discussions on it. But as I said, if it comes in one or the other quarter, I simply can't predict. So U.S. greatly appreciated many projects that are advancing, some of them also leading to new technologies like the hydrogen. So I see the three buckets, as we have said all along. There are some of the infrastructure, there are some of the regulated utilities, and there are some of the ones that are investing into the new technology. All three categories are advancing. So therefore, it's it's i don't think even in quarters it's important to see when the order intake come we announce it when we get it um but as you also know end of last year we ended with more than eight gigawatt of which more than half of it came from the from the us so we also have to appreciate we would not be in near it if we had those numbers time four so therefore good good balance between the quarters and expect more to come in the coming three quarters

Thank you very much.

The next question comes from the line of Klaus Almer, Nordea.

Please go ahead. Thank you. And I have, of course, also two questions, and I will do them one by one. So the first question goes not to the orders, Henrik, but to the onshore pipeline. How do you see the pipeline momentum being built? And maybe you could split it between Europe, U.S., and Australia. That would be the first one.

Thanks. I probably deserved Australia, so let me start backwards first. No, I think Australia is something where it's being built. The new auction regime is being opened here in Q2 in Australia. And I think Australian government and developers will... together with us, of course, set a scene of how that auction will go. There's no doubt the intent behind the Australian government is to increase rapidly and also to have a rather large ambition target in the end of all of this. I think we will have some of the projects we saw last year being halted a little bit coming through the pipeline in the coming quarters. But I, again, Klaus, will at least refrain from predicting what quarter it will be in. But Australia, we see positive. But of course, it is one of those examples of when a totally new regime is announced without having a clear guidance on the energy or electricity price targets in the auction, then you have PPA and offtake market disappearing for a shorter or longer period. I think it comes back, no problem. So Australia for us could be a single attractive market scene going forward because we are well suited for it. In terms of EU, you know it's a mixed bag. I won't shy away from that. The disappointment to see some countries talking a lot but doing either very little or nothing is, of course, frustrating. On the other hand, as I said here, there are also countries that are really doing it. And if you go and visit the south of the border to Germany, I think Germany is the one that deserves credit. They're doing it. They're doing it onshore. They're doing it offshore. And there are many good examples of how that can be built and also extended for the coming years. So political will combined with political commitment also opens up a market with very short notice. So that we appreciate. So across EU, I think we are short of energy and we are definitely short of green electrons. So there's more needed across EU. In the US and in Americas, I think I already answered it. It's a place we spent a very large, relatively part of our time, and it is working and it is ramping up. And as I said here, let's not forget that we have really only been active going since second half of last year. So again here, don't put linear to US because there are so many big things happening That depends on also when you are allowed to have either the grids, the permitting, or if there is any challenges coming. But we are, of course, very positive on the U.S., and I share the excitement for the market, but I also share the deep respect for both the other developers and OEMs in the market as our customers, because it works.

Okay, so as a combination of all the markets and regions, do you see a pipeline that is supporting growth? Not on a specific quarter, obviously, but, you know, on a 12-month rolling or the like, or is more stable? Yeah.

We said that nothing changed from what we went through in our annual report, where we're also saying onshore markets will grow between the 6% to 10%, so that we are not particularly nervous for. We actually see it as a positive upside.

Sounds good. Okay, then my second question goes to the deliveries, which were low in the first quarter. Is this mainly due to the strong Q4, Or was it also impacted by some projects where the last turbines will first be delivered in the second quarter of this year?

I think I would not argue that it was necessarily driven by Q4 or anything like that. It's just how the quarter played out. It's not something where I would say it's materially differentiating to what we had thought would necessarily be the case. Of course, when you compare it to last year, then you can get to the conclusion you get to, Klaus, and that's obvious. That's what the numbers say. But in reality... It's not that big of a deal for us. We are maintaining the plan that we have. And then Q1 ended looking like it did. That's not a big deal for us. But it's not driven by any specifics that it's lower than last year. That's just how Q1 was last year. And then compared to this is what Q1 looks like this year.

Sure, I totally understand. It's just a quarterly variation. I was trying to figure out whether there was some... Some revenue that was just postponed or will come in Q2 instead?

Of course, you can make the argument that you need to make more revenues in the remaining three quarters of the year to get to the full year guidance that we have right. So I think it's very natural to conclude that something needs to happen in the next quarters. We're also saying that we are very back and loaded as we normally are. And that's just being highlighted by a Q1 that is low. And as you can see, it's also lower than last year. But for us, it is what it is.

Okay. Fair enough. Thank you so much. That's all for me.

The next question comes from the line of Jens in Dantogo, Carnegie. Please go ahead.

Yes, thank you. A couple of questions from my side as well. Taking one by one here. Sorry to get back to these legacy or low market orders again here, but how should we think of the impacts from these, both the Q1 and the course ahead? Will they have the most impact here in the first half and then a fading impact? And would it be fair to say that much of the 1.6 gigawatt that you mentioned, delivered here in the first quarter was impacted by these low margin orders? Just to get some sort of understanding of the magnitude and the impact we can expect in coming quarters. That's the first question.

Thanks, Dan. We won't give a breakdown because you only need some of those projects moving from one quarter to another and then any discussion on it would have been wrong. So therefore, as we are saying, we will execute, we will get it done within this year. And I think here, it's again, the step back is also to see what is the EBIT progress we have put forward in the guidance is a fairly reflection of how we are progressing. And I think here again, it is positive that our gross profit And the gross profit margin, as Hans has mentioned several times, is going up. So that means that there is a positive effect of coming through the year. And then when the year is done, we can talk a little bit more around how the quarters have gone out and how that has affected the gross profit.

Okay. Thanks, Henrik. Then I'll try with a question that hasn't been asked yet. Regarding the Red Sea, because you mentioned, Henrik... that you have not really seen any material impact from the disruption here. Maybe you could suspect that it's relating to the fairly low activity you've had, but how would that have looked if you've been through an extremely busy quarter? So I'm just, you know, thinking about how should, because the Red Sea continues that impact going into Q2 and probably Q3, it would take a long time to unwind here. How comfortable are you with this statement of no impact if we are looking at very busy quarters coming up, Q2, Q3, and we still have a red sea situation? Are you comfortable with that?

Yes. No, I'm teasing you a little bit here, but I'm also trying to reflect just what happens when we had the challenge starting this year. And I think it's fair saying, considering the amount of other disturbance and other challenges we have had in supply chain, it seems like the Red Sea mitigation was a lot easier to mitigate for us than some of the other challenges we've had. Don't forget here, It's not a shortage of any of the underlying components. It is a time that needs then to be planned different. And with what the transport logistic teams has done with our partners globally, then it seems like a much more small event that could be worked around. And that, of course, is what we have done. That also means there's some things we don't unwind as quickly as Hans will say on the inventory or whatever. but that's just days you have to mitigate in transport time. And I can see there's somebody else releasing numbers today, which we know very well, and they've just said that a probably red sea could last a whole year, and that's fine for us. So we work through that, and there's nothing further in reality to add to that. So there's no, hasn't led to any changes in our guidance for the year.

That's good. Then just one final verification here. As I understand the reading here on Q1 and explaining the relatively low activity, it is as expected, more or less as you expected, you can say. And there has been no projects really slipping, or we should expect no projects really slipping from Q1 into Q2. Can you conclude that?

You know, we always have projects moving around in and out of quarters and stuff. But as we've tried to say for us, the activity levels we're having in the quarter is, I mean, it's pretty much in line with what was expected. And as we are typically seeing slow Q1s, I think you very quickly can get into a discussion about something that's, I don't know, is 100 million euros or whatever is the amount. And I'll be careful not to spend too much time on it. We have a back and loaded year. We knew that when we stepped into the year. And that's what we're focusing on. And so far, what we can see is that when we look at the deliveries and what's going on, we feel comfortable, obviously, also maintaining the guidance we have for the full year.

Understood. Thanks.

The next question comes from the line of Ayai Patel, Goldman Sachs. Please go ahead.

Good morning and thank you very much for the presentation. I have two questions, please. The first one is, you know, this year trying to separate timing effects and activity levels is a little difficult this year with the low-margin projects still present through the backlog and being worked through. So I was wondering if you could help us a little bit here. So if we were to think about those low-margin projects, are they evenly distributed across the year in regards to their volume? Either they represent a larger proportion of overall revenue for Q1 and less so in Q4, or should we think about that in a different way, just to help us to shape the profile that ultimately gets to your target? And then the second question I had was more about to build on the sort of point that you made that, you know, another year of growth expected, on the onshore backlog, and I was just trying to understand if you could help us with that journey on maybe which geographies you would think are the ones to watch. Not countries, but if you could maybe do North America, LATAM, Europe. It just gives us a bit more of a sense and helps us to track the journey alongside you.

Thank you, Jay. On the first one, I will say you used the word evenly distributed. I said you can't do a linear programming of it, and I think we then probably understand each other very well in saying it isn't evenly distributed or it's not linear. and therefore we don't give a quarterly guidance. We stick to our guidance for the year and we are comfortable with that. And I think you can ask us in 20 different ways, but we simply don't want to in a project business like ours with three quarters to go. We said also we started the year along our expectations, but within the quarters, you only need one or two of those projects to drip between the quarter, and then you will have missed your guidance. So it is not evenly distributed, no. And number two is on the onshore growth. We are positively over it. I think I answered on Klaus from Nordea, also a little bit of breakdown of we are still positive over the Americas, broadly saying. We've seen also some orders in this quarter. that related to part of Latam, which we haven't seen before. Then on the other hand, counterbalancing that a little bit is that the PPA and electricity markets in Brazil is slightly lower. So there will always be trade-off in markets that goes up. That is probably the underlying strength of Vestas. We are in more than 80 countries. We are represented. We speak with customers. So therefore, for us, we are used to have markets that go lower or disappear for a period of time. and then ramping up. The positive overall for us is in our core markets like North America, like the EU, and like major markets in Asia-Pacific, the underlying trend is positive. And yeah, I apologize. I haven't been able to document it in Australia, but we'll see how the coming quarters go. And as I said, I remain our position there that we are a good player in Australia. So therefore, wait and see it coming.

Can I just have one follow-up on the first question, please? I think when we discussed it the full year, we're talking about thinking about sequential improvement in margins year on year as we go through the year. I just wanted to check. There's no shape effect to that. It's a little bit like the first question, but it may be slightly refreshed. But it's like there's no point in the year that we should expect any jump up in profits or improvements just because the way that the legacy projects work.

Can I interrupt you for a second? We said the gross profit margin is walking forward as we expected. It's nice for us to see. We're coming out with a momentum increasing from 23. We are positively executing on it. And then we have a midpoint that is a guidance this year, 4% to 6%. And we are aiming towards the double-digit EBIT. And then we will come back and comment on that. when we get to February in 2025 for 25. So you cannot make that assumption, and I won't give any further guidance between quarters or exit, but it is actually working to plan.

Fantastic. Thank you, and you can't blame a person for trying.

No, as we say, it was a charming try.

The next question comes from the line of Max Yates, Morgan Stanley. Please go ahead.

Thank you and good morning. My first question is just around some of the cost pressures that we're seeing in the market. I guess what I wanted to ask is, given that we're now seeing some of the freight costs rising, some of the commodity costs now starting to rise again, how comfortable are you that the kind of guardrails, escalation clauses that you've put in place are able to kind of capture this and pass it on to customers. And I'm thinking particularly of the power systems business, where you've obviously got a sort of fairly sizable backlog. So if I could just check on your kind of confidence around that, and is there anything that is difficult within your cost base to actually capture in some of those escalation causes to pass on to customers? Thank you.

So you're absolutely right that we are seeing things moving around and also going up and going down. I think it depends very much on which month you're looking at, whether you get to one conclusion or the other. But I would say, generally speaking, we are in a better place than where we were perhaps two or three years ago when looking at some of these escalation clauses and what we have built in. But of course, we also have exposures and things that we can't necessarily hedge or lock. um i think what's important is at least when we sit and look at it still the corridor of the movements and the variations we are seeing is smaller than what we have seen so the volatility is still not the same as what we have seen in the past but we of course are working with all the handles that we have in in our pocket to to address the points you mentioned there um and generally speaking I would say we have a better situation now than we had a couple of years. Of course, to also say it as it is, we'll need to see now in the coming years what the instruments and the things that we have been introducing how well that plays out, because the fact of the matter also is that it's fairly new to us and to the industry to have been working with this. And I think we are probably going to realize that some of the things we have been doing are not perfect, that they're not necessarily going to work as intended in all cases. But at least I would argue that given that we have more of this and that we have put it in, we should be in a better place when it comes to some of these types of escalation mechanisms that we have.

And maybe also here it's fair, Max, to just, it's all relative, right? Right now, the variations we see compared to what we saw between 20 and especially second half of 22, come on, it's relatively small movements compared to what we have been used to see. because it wasn't necessarily the cost pressure alone. It was also the complete queue or even the down lock of countries and access. So I think there's degree of that nature. The other thing is also here you can have clauses, but it is also the time that leads up to we can do our hedges. So the binding offer period has come down a lot. which is probably a much more important one for us because that's where we can start the hedging.

Okay, maybe just a very quick follow-up. Just when you think about your double-digit or 10% margin ambition, I think I'm correct in saying you used to talk about or do talk about a kind of 25% service margin within that. As you're thinking around the make-up of that 10% margin between where you think service will get to and where you think power systems will get to? Has that shifted at all in your mind? Or is 25% still quite an important lever for services within the context of that margin ambition?

Thank you. I think, Max, you know, if you sit and do year-round planning and you have building blocks of service and power solutions here, you can come to the double-digit in many ways. We don't see service... sort of refraining from the targets and also for service performing well but we also in the last couple of years seen when you see in between the years of service you also see different performances and don't forget last year was the first year where we actually paid out a bonus in four years to our many employees and colleagues in the service business so Service continues to be on a journey towards their 25%. And, of course, the overall investors continue to be on a journey to double-digit EBITDA. And that can be achieved in a couple of different ways.

Yeah, okay. I guess I'm just trying to gauge how you think it will be achieved. Do you have a strong view on that or not?

No, I would just sort of say here we invest in service, we invest in the business, we are investing in the tools they are doing. And then, by the way, the growth of service is also positive. Some of the factors to then get to double-digit is a combination both on external things and internal things. And I think one of the biggest internal things is, of course, our own warranty provision, which you're seeing coming gradually down. But you will also see service performing pretty well with a growth as part of it.

Okay. Understood. Thank you very much.

The next question comes from the line of Colin Moody, RBC. Please go ahead.

Hi, guys. Thanks for taking my questions. I just have two. So just question one, could you give a comment on the sequential development on transactional sales and any thoughts as to how they're trending? I'll ask my second question after that.

I'm sorry, Colin. I simply couldn't hear you. So can I get the question again?

Yeah, apologies. I was asking, could you give an update on the sequential development of the transactional sales during the quarter?

I think in the transactional sales, it's been plus minus around the same levels. So it's trending still at a high level, which probably also reflects that the transactional sales is key for both us and customers to keep turbines running. So that one is still running and still running to plan. And As we have seen, at least, transactional sales is also related to some extent to high energy prices, and that hasn't shaded away in the past quarter either.

Great, that's very clear. Now, my second question, a bit longer, so hopefully the line remains clear throughout. There's a question on the relative pricing versus peers. Clearly, the pricing industry has gone up over the last two to three years, although Vestas has developed a bit of a pricing premium. Arguably, it seems that pricing premium has actually even widened in recent quarters. Just a question for when you go up for your tenders, are you feeling this pricing pressure, this competitive pressure from your peers? Or would you say perhaps actually recent competitive changes in the landscape have actually seen peers try to close the pricing gap, that pricing premium to best-best?

Thanks. Yeah, I try to avoid commenting too much on pricing and ASP comparison between peers in this sense. I think we are very much focused on getting the right return for our customers. And therefore, we take that as a much more by the individual discussions with customers. But as you can see on the pricing for Vestas, we do that considering both getting the projects done, but also for sure getting the right value. And as we have said now for quite some time, it doesn't make any sense for us to invest more than a billion in technology and manufacturing capex if we are not making any money. So therefore, pricing has to adjust so it also becomes part of the full value chain, not only for investors, but also for the industry of building more capacity.

Great. Thanks for clarifying.

The next question comes from the line of John Kim, Deutsche Bank. Please go ahead.

Hi, good morning. I was wondering if we could spend some time on emerging markets. Wondering what you're seeing from Chinese competitors in terms of project wins, price aggression, capacity build-out in larger EM markets. Thanks very much.

Yeah, I don't see, you probably see it, there's obviously some discussions in there when they have orders, which has been done in parts of regions like Middle East and to some extent Latam and Africa, quite keen to announce those. We follow those as well. And for us, it very much comes down to individual customers and how we get that done. But as you can probably appreciate, John, we haven't had an order in China for some time. So therefore, at least from a market perspective, we don't see that necessarily as a market open for us. Great, thanks.

The next question comes from the line of Ben Hillen, Bank of America. Please go ahead.

Yes, morning. Thanks for taking my question, guys. The first one I had was just following back on some of the questions around the U.S. market. Can you talk about what you're seeing from customers and if you're seeing any hesitation from customers in the last quarter around the election, election year in the U.S., if that's impacting kind of customer decision-making? Any comments there? Sure. Going back to one of the questions around the 10% margin target, can you talk about your confidence about getting there? Obviously, we're a little bit closer to it now. Your gross margin is moving up. So can you talk about your conviction around getting to that 10% and any timelines around that? Thank you both.

Thank you so much, Ben. I think on the U.S. and U.S. markets, very positive, still leaning towards it, fully acknowledged something there on the first week of November, and I'm pretty sure we will be enlightened by that over the coming months. We have been in the U.S. for several decades, so therefore we used to have presidential elections in And of course, we work through that with customers. I think generally overall, I think majority of customers are positive over the legislative framework that we are working on. And therefore, that continues like building out capacity on green electrons in the US. So, so far, I don't see necessarily either a rush or a hesitation on it. But as I said, that's at least a statement of today. So, I feel pretty confident with a long lead of Aira over the many coming years that that is so integrated in the legislation now that it will continue. on our 10% ambition I think I already commented quite a lot on that it depends on external factors and our internal factors and We haven't deviated from that. So that's the target of double digit EBIT. And of course, I understand where you ask and what you're asking for and which quarter it will be. And we don't give that guide. We work on 24. It's a busy year. We have a progress year. It's really nice. And then we come back to what is the outlook for 25 and also what we see for 25.

All right, Henry. Thank you very much.

The next question comes from the line of Sean McLaughlin, HSBC. Please go ahead.

Good morning. Thank you for taking my questions. Firstly, on CapEx, there's still €1 billion to spend. Maybe you can talk about progress and challenges to your highest ever CapEx goal. And also given the weak free cash flow in Q1, how are you thinking about potential postponement of CapEx? And secondly, just coming back to service, if maybe we can phrase the question in a slightly different way, you know, looking at the top line growth in Q1, Should we see this as the norm or should double-digit top-line growth be something we should expect through 2024 for service? Thank you.

so taking the capex question first i think it's interesting to to get a question around how we spent the money so to say uh there um of course when you look at it we still have a billion to use as you point to and as we also point to we are seeing a significant ramp in the offshore segment that is where we expect to see deliveries next year for the 236 platform And of course, for the same reason, that is also where we are spending the money right now. And as I highlighted before, a lot of that goes into the Poland factories that we're building. They are driving a significant part of that. So in that sense of the word, it's of course actually important that we spend this money on this ramp to make sure that it continues on track. And for the same reason, if that's what you are, focusing on we don't have any intentions to potentially use the capex to drive cash flow so to say because we have the plans that we have for the reasons that are quite obvious that we need to be ready for what we need to do so it's not really a consideration if that's a point that that the cash flow could be say improved if you were somehow looking at a lower capex out at the same time point to that we're actually looking at an improvement on the cash flow compared to last year in q1 So there we are actually seeing that things are actually heading in the right direction as well. The question then on service, what we're focusing on is the growth that we're seeing in EBIT. That's also why we changed the guidance principle to reflect how we think about the business. And there we maintain the ambition level that when you look at the full year, we are guiding for the 800 to 880 million euros, which implies a growth then in the service segment compared to where we were last year, where I think we had an EBIT level of around 750 million euros. So being somewhere in that span should give you an indication of what kind of growth levels you can expect from that segment during the year. But as mentioned, we prefer to talk more about that on the EBIT level in terms of what it is that you're looking at in our guidance that we have for the full year. Thank you.

Next question comes from the line of Martin from Wilkie. Please go ahead.

Yeah, thank you. Good morning. It's Martin from Citi. The question I had was on the demand environment. And we're hearing a lot of reports about increased power usage because of artificial intelligence and therefore how much electricity is needed by data centers. And we saw a few days ago news articles that Microsoft might be spending $10 billion on renewables. Could you give us some sort of sense as to what are you hearing from customers about that opportunity? Obviously, we know that wind is intermittent and therefore it has to be done in conjunction with other sources of power. But over the past year or so, when the AI news flow has really accelerated massively, have you noticed a change in tone in terms of a potential demand opportunity from the power needs from AI?

I don't think from a quarterly demand cycle on electricity, Martin, it's there. But of course, if you sit down and do some of those forecasts on how AI exponentially or even much, much deeper has an impact, of course, that will drive an underlying impact. I just welcome some of these things because when you think back five years ago, at least in the main part of Europe and to some extent across the world, there was very little private offtake on PPA level. And now that's different. So there is a less and less degree of dependency on governments and also how we run the auctions, potentially the feed-in tariffs, and now that it's been taken over more and more of the ppa so for me i i welcome that i've seen i've seen numbers on it and i also see numbers of where you will then put some of your hops and servers on the ai and that seems to be very much also centered around some of our core markets so So, well, as I said here, there's a little smile around the face and see that, but it's also clear that it's not going to happen as an order intake in Q2 or Q3.

Thank you. That's helpful. And if I could just have a follow-up. You mentioned there's been a A slightly statement in some of the service backlog in terms of turbines and gigawatts under service, but not in terms of the Euro value. Just to clarify, is that just a sort of timing as to when you counted the turbines in that gigawatt number? And that's the meaning of no change from the Euro value of the service backlog versus the number of turbines and gigawatts under service?

I'll just say here, Martin, lay flat down and just say apology on it. There was just somebody that probably put it into the service backlog and it was not yet commissioned. It was under construction and that I can only lie flat down and saying, apologize for that. And we adjusted and there's nothing else to say. and it actually comes from one of my places I mentioned before, so therefore I won't drill into more details. It's just what it is. So if we have a mistake in something like that, it doesn't affect the underlying numbers of colleagues, the EBIT or the turnover from it. It's pure and simple the gigawatt under the backlog. Sorry.

No, it was just a clarification, but I appreciate that. Thank you.

The next question comes from the line of Henry Tarr, Berenberg. Please go ahead.

Hi there, guys, and thanks for taking my questions. Two, one just on deliveries in Q1, clearly sort of seasonally light. Is there any reason, why is the seasonal weakness in Q1? Is it weather related? Is it something to do with the timing of connections? Are there timings for some of your clients? Just to get a sense of that. And then secondly, on the ASP, I think in the comments you said you're very comfortable with the ASP at 0.97. Should we think about the U.S. being a significant part of the order intake here, that overall margins, et cetera, embedded within that remain high and potentially improving? Yeah, that was the question. Thank you.

So let me start out with the seasonality question first. And I think we could spend the rest of the day talking about why that is. Because in some ways, structurally, if you think about it, there are certain things, even during my time here at Vestas, I've thought, and I know a lot of other colleagues as well, Couldn't we have a more flat, say, seasonality, so to say? When you start to look into it, there are reasons that can be explained and then actually some that can't necessarily be explained. But, for instance, weather does play its part. You're not necessarily that keen on doing installations, winter installation in certain areas. You have different, say, wind speeds and those kinds of things. So, yes, there is a point in, for instance, how weather impacts your ability to do installations. There's something about how contracts are structured as well, which is something I'm still trying to understand sometimes at my end, that there's a link between when you do the order intake and when you then end up with the timing of the, say, handover to the customer. But then there's also, once you dig into it, effects like when can you actually pour foundations in certain areas. You can't do that unless there are certain temperatures, which in turn has impact also on when you can then do installations. So there are many things playing in. I think we would, of course, prefer to see something that is more evenly distributed. But I think for the entire industry, this is the way that it has always worked to some extent. Yeah, we're trying to flatten it out. Then in this year, in 2024, of course, you're looking at something that, I mean, also based on all the questions we're getting, it does indicate that we are seeing something in Q1 that's quite low. But as we've also said before, for us, that's not necessarily that big of a deal in terms of what it looks like so far in the year. We've known all along this will be a very back-end loaded year, and we do continue to execute on the plan that we have for the year. Then on the last question, I actually can't remember that.

I can't seem from my notes exactly what that was. That's the ASP on stable pricing, and I think here for us, we welcome that. We know the locations, and we also know the scope, so we're actually pretty pleased. And you know how disciplined we are with this, that if it doesn't fulfill it, then the orders are not coming into the order backlog. I can see it's quarter past 11, so if I can sort of make the next in line, the last question we have, and of course that unfortunately probably cut somebody off, but as such, then I'm sure we'll meet each other over the next couple of days. So thank you for that, Henry. Thanks.

The next question comes from the line of Kasper Blum, Danske Bank. Please go ahead.

Thanks a lot, and thanks for allowing me in the line here. I was hoping if you could give a little update to your ramp-up in the U.S. Obviously, we know that the backlog is very strong. You talked about going from one shift to two shifts. So how is that getting along? For example, are you able to hire the necessary people? That's the first question. Second is, you've touched a little bit upon it before, but within quality and warranty provisions, that space there, If you could give an update to some of the older issues that you've had on lightning protection systems and bearings and so on, how we're getting along with getting that fixed so you can leave that behind you. Thank you.

If I take the ramp up in the U.S., working to plan, no, we haven't yet split, and it wasn't the intention to split on a particular date. So we are working towards that. But as you can also see, we haven't been pushed to have a lot of deliveries in Q1. So in reality, right now, we are ramping up, Kasper. We are getting people in, getting them trained. And that's really important for us because, of course, if you look at that at some point in time when you do split the shifts, then you need to have well-trained on both shifts and a core on both shifts. So that's happening. It's happening through this year and it's happening in the coming quarters. So we will let you know when we are We passed now some 4,000 people in the U.S., so actually we are onboarding quite a number of people every quarter. So testament to some success of ramping up, but then when you ramp up from literally being at standstill, there will always be some challenges which we are used to. So we are just positively working with that ramp up in the U.S., On the warranties, there are, as Hans already took you through, there are no new cases, major cases. We are diligently executing through it. As you have been seeing also, we consumed something that is on a comparable for a Q1, which again backs to the previous question also. There are timing and seasonalities in some of these things. where you can do it, but we work through it. The LPF is coming down, which is an important indication for us as well, which is the leading for us to also vote for better outlook for the warranty provision. So as such, Kasper, no surprises, a quarter to our expectations also when it comes into warranties.

But could you give sort of an expectation to when would you expect that these sort of legacy problems would be solved so that you could say, okay, now we're not being impacted by inflation on that or anything anymore. We can sort of look ahead on that.

That's not in a sense. You can't with a single one because some of the ones are also, you don't need to touch some of these until there are things or indications of that it has to be changed. So there are different ways. when you have these. So therefore, that's not. It's progressing. We are well through some of the major ones we have talked. Some of them are done and completed. Others are just wait and see until we have to replace, for instance, critical components or components. But it is not as such a safety issue of letting it run until it fails. So that's fine. It's accordingly to plan, Kasper. So there's no news update on that.

Okay. I guess that's why you've provisioned more than you've consumed. Thank you.

With that, thank you so much for the interest and also a lot of questions. So thank you for that. And we look forward to the interaction over the coming days and not least to get on with the execution for the rest of the year. So thank you so much, everybody.