8/14/2024

speaker
Henrik Andersen
Chief Executive Officer

Good morning and welcome to our full presentation of our Q2 and also first half reporting for 2024. Clearly, you've seen it from Monday, the negative quarter for service, but also with a solid progress in most other areas. And I'm sure we will talk more about all of these topics in much more details in the coming good hour. I'm also sure here that we will look at the trajectory for the full year. And with that, I would like you to take us to the key highlights for Q2 and to some extent first half. Key highlights for Q2, revenue of 3.3 billion euros. That is a revenue decrease of 4% year on year, affected negatively from the service and offset by higher delivery ASP from the power solution. Service impacted by the adjustment to the planned cost, service EBIT negative of 107 million in Q2 due to the approximately 300 million in negative adjustment and also there with no cash flow effect. Underlying earnings progressing as expected. We've seen the turnaround in power solution is on track and has improved EBIT margin almost 8 percentage point year on year from the Q2 2023. The order intake was 3.6 gigawatt. The order intake grew, therefore 54% year-on-year, driven mainly by onshore projects in both Europe and Asia-Pacific. We'll talk more about that in a minute. See a strong cash flow for the first half, adjusted free cash flow of half a billion euros, drives leverage down to 0.7, net interest-bearing debt to EBITDA. And then we narrowed the outlook, the turnover expected now between 16.5, 17.5, and an EBIT margin of 4% to 5% for the full year, and we will talk more about the outlook in details in the end. So with that, if we go to the business environment first, I will say the first two sections, the global environment and the market environment, about the same. So we've seen that the global environment still contains some of the geopolitical volatility. I will also say we see that in a number of markets where the overall inflation are declining, but specific components rising and still weight and salary increasing. are sticky in certain local markets, both in Europe, America, and to some extent in Australia. When we look at the market environment, I think the grid investment is getting prioritized in key markets. We, of course, welcome that. We also can see that they're upgrading in general, and we can talk more about that in details of examples. I think here, a welcome to also Germany and UK. Overall, permitting are progressing. The auctions We can see that also with the budget increase from the UK. There are really here political commitments to start getting this moving into concrete actions. I think for us, and both Hans and I will talk more about that at the project level, some of the supply chain normalization we have been speaking to are now also influenced with some of the regional disruptions. We know the Red Sea, which I'm sure some will have comments or questions to. But for us here, the main part is the second one where we see that the project executions are taking place as we planned and we are working patiently through the low order margins back from prior to first half of 2022. Really important thing here is that we can see our execution have very little differences to what we planned to do, which is also one of the material contributions to the progress and the progression in power solutions But of course, we are seeing a better ASP also to be executed. So with that, let me go to power solutions and give you the highlights of that. So good order intake across our markets. The order intake ended at 3.6 gigawatt, up 54% compared to the last year. There's a good activity driven by onshore projects in both Europe and Asia Pacific, as well as the North Sea cluster offshore project with RWE. The largest onshore project in the quarter was the 577 megawatt Golden Plains Stage 2 wind farm in Australia, potentially making it a revival of a very important market that is also finding itself in the middle of an auction process. I'll also here point to the Golden Plains one was an order intake back in 22. And it also just document the model that is firmly with that the best way of getting the next project done or in the order books is executing well on the first project or the existing projects. And at least with this customer and Tag Energy, we are well ahead in the Golden Plains one, which is a project approximately an hour and a half outside Melbourne. In the quarter, the ASP increased to Euro 1.21 Euro per megawatt in Q2. Of course, that's helped by mixed effects from Scope with a higher share of EPC orders in the quarter and a continued very good commercial discipline. Also, their highlights go back and see the first order coming in in Golden Plains. There you will also see an ASP that was significantly influenced by that in the quarter in 2022. So to the right, you will see the order intake in onshore and offshore, and you will see the specific offshore order here with the 660 megawatt and below the development in ASP. With that, I'll go to the service. And service remains a strong business area, despite the question. I'm sure we are raised to our own announcement from Monday. So if we look at the highlights, the service order backlog increased to almost 35 billion from 32 billion a year ago. The inflation indexation remains a key mechanism to protect backlog profitability. However, adjustments to planned costs impact current profitability. The revision has no significant effect on the service backlog nor the cash flow. Enhanced focus on the operational excellence and cost out initiatives to mitigate higher operational costs. We'll talk more about that. And at the end of Q2, Vestas had 151 gigawatt under active service contracts. You'll see the breakdown to the right. Again, the backlog of 35 billion. And again, the average contract duration of 11 years on average in more than 80 countries. And then you'll see the breakdown per region in below. Then I'll go to the development business. And again here, the Mississippi Wind Farm Commission with Amazon as a main off-taker. And I will say here that's a heading, but the other heading that is still in the development business is quality over quantity, because it is about getting the quality into the development projects right now, which is also the underlying reason why you see a new secure pipeline hoovering around zero. In Q2, Vestas Development commissioned the Mississippi's U.S. first-ever wind project, the 185-megawatt Delta wind project. Amazon will purchase most of the renewable electricity generated to power its nearby operations. The Vestas Development experiences strong political support for new renewable energy projects, but faster permitting processes and new grid investments remain bottlenecks. There are still queues on some of the grid projects in and around our key markets in Americas and in EMEA. At the end of Q2 2024, Vestas' pipeline of development projects amounted to 29 gigawatt with Australia. US and Spain being the countries with the largest project pipeline. You will see the breakdown to the right again, and you will also see the breakdown of development pipeline in the regions attached to it. With that, I'll go to the sustainability overview for Q2. And again, here in the quarter, we've seen a lifetime CO2 avoided by product and shipped capacity increased by 11 million tons compared to a year ago. The carbon emission from our own operations decreased by 7,000 tons year-on-year due to the lower offshore activity leading to a reduced fuel usage. This is something we will start talking more to because, as you can see, when we are measuring this in approximately 100,000 tons of CO2 per quarter, we only need one or two project activities to in reality materially influence this number. So we will talk to it and we will also talk to it as we start ramping up some of the offshore construction when we look towards 25 and 26 beyond. The number of recordable injuries per million working hours declined to 2.8. We tirelessly work to improve our safety performance across our entire value chain. And of course, this one is we ended up happy with until we are fast approaching zero. With that, I will hand over to Hans for a walkthrough of the financials.

speaker
Hans
Chief Financial Officer

Thank you so much, Henrik. And we turn to the income statement first, where we can see that revenue increased 4% year on year, affected, of course, by the adjustment to the planned cost and service, but also by lower volumes delivered. But importantly, this was almost fully offset by the higher average prices that we had on turbine deliveries and power solutions, which is also indicating, as it says here on the slide, that the underlying business continues to improve in many ways. Cross-profit was 156 million euros, equivalent to a 4.7% margin, again negatively affected by the service adjustment. However, the underlying power solutions business, as I said before, actually continues to perform better and better. We'll come back to that on the next slide. EBIT margin before special items was minus 5.6%, and disregarding the effect of the planned cost adjustments in service, the service EBIT margin would have been positive. As I said, we are seeing that profitability is significantly improved in the power solution segment, revenue increased by 4% year-on-year, as we are seeing that the higher pricing that we have achieved on our deliveries can more than offset the declining volumes that are being delivered. EBIT margin before special items was sitting at around 0.7%. That's a substantial increase, almost 8 percentage points compared to last year. And I think it's good to highlight here that this really evidences that the profitability is improving and that our commercial discipline sticks and that we continue to see that this division is getting into better and better shape. Nonetheless, I would also like to point to the fact that also in this quarter, profitability remains hampered by execution and completion of some of the low margin projects that we took in before mid-year 2022. And as you've said before, and I would like to confirm that also again, we should be largely through this when we get to the end of this year. That takes us to the service overview, and there's effectively no change to the slide here compared to the one that we presented earlier in the week. And we can see here how the adjustments to plan cost impact the profitability. Service generated a negative EBIT of €107 million as a consequence of this, and, again, this is due to the percentage of completion method we're using, and, of course, that affects EBIT in the quarter. The adjustment itself had a negative accounting effect of approximately 300 million euros or 312. And I should also stress that there is no cash flow effect in the quarter from this adjustment. And disregarding this, the earnings were pretty much flat year on year. Service revenue declined 26%, and again, this is driven also by this adjustment, and I should highlight here as a last point that transactional sales were a bit up in the quarter and that we had currency headwinds of 1%. In the quarter, I would say we had a quite strong cash flow, where the operating cash flow stood at 830 million euros. This is, I would say, a quite considerable improvement compared to last year of 783 million euros, so basically going from zero to 800. This was driven by a reduction in the net working capital, but also, of course, by the improved underlying profitability that we're seeing. The adjusted free cash flow then stood at around half a billion euros. This is also a significant improvement compared to last year. So, all in all, I would say a strong cash flow in the quarter is definitely what we have observed. I mentioned briefly working capital before, and here we can see the composition of how that has played out. Networking capital did decrease in Q2 due to a decrease in the contract assets driven by milestones from customers, down on milestone payments in the power solution segment, partially offset then by inventories that are a signal that we are preparing for a high activity level in the remainder of the year. So, I should say, it is a development that reflects a very busy second half of the year, but at the same time, as we also saw in the cash flow, I think well managed in a way that we can be quite pleased about. Turning to the investments, I'd like to highlight here that we are preparing still for the ramp-up of the production in both Europe and the U.S., and of course, in Europe, the main thing that we're investing in is the 236 offshore manufacturing platform, preparing for the first deliveries that we have next year in 2025. But I'd also like to highlight that we are also investing into our on-shore American footprint, where we are ramping up production and where we are expecting for deliveries to come up in the coming quarters. And all in all, that takes us to the investment level of the 269 that you can see here on the slide to the right-hand side. That takes us to the provisions and to the LPF overview that you see here, where we can see that the warranty costs are improving further, but at the same time, we are still seeing an LPF sitting at an unsatisfactory level. It is improving, though, and there are concerted efforts going into addressing to taking this down. We are seeing that some of these efforts are paying off, but I would also Again, point to the fact that we are still at a level that we are not happy about when you look at the graph here to the right-hand side. Wanted cost stood at 141 million euros in the quarter, which corresponds to 4.3 percent of revenue, and that compares to a level of around 5 percent a year ago. That takes us to the last page here in the financial section, where we can see that our financial leverage is back within targets. And of course, that is driven by a combination of the profitability improvements that I've spoken to already, as well as the cash flow developments that are also coming through in a quite good way. All in all, that gives us a net debt to EBITDA ratio of 0.7, which compares, I would say, quite favorably to the 4.5 level we were at a year ago. So I definitely say it's good to see now that we are coming back to movements and levels that are, let's say, less dramatic than what was the case if you go back three, four quarters. So good development there. Finally, let me point to the rating we have for Moody's, BA2, with a stable outlook. And that brings us back to you, Henrik, for the outlook.

speaker
Henrik Andersen
Chief Executive Officer

Thank you so much, Hans. And let me take you through to the outlook. No changes to the slide you saw on Monday, for sure. So revenue is 16.5 to 17.5 billion euros. And the EBIT margin before special items sits for the group between 4% and 5% versus previously 4% to 6%. And the EBIT of the service business around 500 million. considering the 312 million adjustment in the quarter from previous 800 to 880. Total investment sits around 1.2 billion euros. And all of this, of course, is based on the current foreign exchange rates for the remainder part of the year. So with that, operator, I just want to thank everyone on the call and also for some of the many discussions that have been over the last 48 hours. And I'm sure we will look forward to see many of continue some of those over the coming days. So over to you, operator, and Q&A.

speaker
Operator
Conference Operator

Anyone who wishes to ask a question may press star and one at this time. The first question comes from the line of Ayai Patel, Goldman Sachs. Please go ahead.

speaker
Ayai Patel
Analyst, Goldman Sachs

Good morning. I have two questions, please. Firstly, it's on the margin. So if I take the performance over the first half in EBIT terms and the revenue and then take it from the midpoint of your new guidance, I end up with an implied margin of around 9% for the midpoint. And that compares with your medium-term target of 10% and consensus before the pre-release of around 6%. So I'm just trying to understand, is there any one-offs in that second half of the year? Or is it really like the 9%, a genuine sort of 9%, clearly with higher activity, that we should be thinking about as a driver going into 25% where there are no very limited legacy projects compared to this year where we had quite a few. And then the second question I had, I think it was just a clarification from the conference call. Now, you've highlighted this one-off cost on service and as a function of higher planned costs. And that should have its impact in regards to the margin that you would earn in future years on service. And I think you've made a reference to broadly having the same profitability as what you've been experiencing in the last quarter. So I think the last six quarters was 21%. Is that the right way to think about it and how that will then evolve into the future years as a starting point? And was there an assumption of margin within your 10% margin target so that we can sort of reference where we are on the back of the news flow this week? Thank you.

speaker
Henrik Andersen
Chief Executive Officer

First of all, Jay, thank you so much for your questions. And I can hear both of them addresses and leans towards the 10% EBIT target. But let me start with first thing first. You're right in terms of H2. There are no single effects on that. So it is, as we are also saying here, it's the ramp up we are doing. And it's also... probably as you can see on the numbers when you do those comparisons even to also 23, we have a busy second half of the year and we also have a more back-end loaded second half of the year than we have had previously. And of course that comes through with what we are seeing now on the assumptions that we are executing in an environment where we have less deviations and we can see some of the ASP coming through. Second half of the year, we get the operational leverage with the volume we are executing on. And, of course, that leaning towards normal things. But also here, and now we've had a long discussion after Q1 this year, then just be aware that that operational leverage doesn't sit in quarters where you only have one and a half or two billion dollars. So therefore, before you sort of extrapolate your 9, 10% into this is then 25, there will be quarters where we don't have that operational leverage also in 25. And you will also have the ramp up of offshore, which is not giving us the right critical mass in 25. On the service from that, as we said, it will perform accordingly to what we have seen in the recent quarters. We don't see an effect of what you're doing here to immediately on the coming quarters. This is a backlog review of planned costs and therefore it's much longer than what you would assume in just being the future coming quarters as well. So service profitability, assume what you're having in your previous quarters in the model.

speaker
Ayai Patel
Analyst, Goldman Sachs

Thank you very much.

speaker
Operator
Conference Operator

The next question comes from the line of Christian Turney, SEB. Please go ahead.

speaker
Christian Turney
Analyst, SEB

Yes, thank you. Two questions from me as well. So first question goes to the order ASP. There's obviously a scope impact in this quarter, but I also know that you state good commercial discipline, and I even think it's a very good commercial discipline as a driver here. So does this mean that there's actually an underlying like-for-like price increase in the quarter ASP?

speaker
Henrik Andersen
Chief Executive Officer

I can hear every word needs to be said carefully here. Very pleased to see that we are progressing with what we are doing. The split also here indicates that we see it across a wide range of countries. So for me to see that we are able to both keep and build on the commercial discipline, Christian, is the main point for me. So that's what I mean by very good commercial discipline across that many. You can also see we have had a relatively large volume of unannounced orders, which sits to the tune of 700 megawatt. And of course that comes predominantly from close core markets in Europe and particularly also in Germany, which of course is also why we are welcoming it. So there is a very good mix in this quarter. And for some of you, I can see you also noticed that there was a line on the 30th of June. But we have continued with probably what is a better momentum in Q3 beginning. But it also hints that there was things that probably got delayed from end of Q2 into Q3. But that's what you now see in the first weeks of Q3. So actually pretty pleased with the commercial progress so far.

speaker
Christian Turney
Analyst, SEB

Okay, that's quite clear. Then my second question goes to your business environment slide where the supply chain dot has turned yellow from green last quarter. On Monday, we learned that the inflation indexation in your service businesses is not fully compensating the expected cost increases. So just reflecting a bit on the similar situation, view for power solutions, considering supply chain may be a bit more difficult. Should we expect that you're fully able to mitigate the additional costs through your dictation and contracts and so on?

speaker
Henrik Andersen
Chief Executive Officer

We go from a green to an amber. I think what we also discussed before, the Red Sea and other things, causes some time and cost discussions right now. We have strong partnerships, which puts us in a good position together with the partners to mitigate some of these, I call them, disturbances. We won't in the long run go untouched by that. But on the other hand, that is then what will also to some extent be shared with our customers so in this sense it's just a highlight that it seems to have gotten not any better at least and it starts coming to some disruptions also in some local areas in harbors and others but so far not really of a concern to any similar comparisons to what we have seen in the previous years Christian Very clear, thank you so much

speaker
Operator
Conference Operator

The next question comes from the line of William Mackey. Kepler Chevre, please go ahead.

speaker
William Mackey
Analyst, Kepler Cheuvreux

Yes, good morning. Thank you very much for the time. I have two questions. The first question relates to the outlook for the power solutions business in the second half of the year. Just with respect to volume, I note that your installation volumes in Q1 and Q2 were down 22% and 17%. But the guide you're giving for the second half implies a significant step up in revenue, partly driven by ASP improvement. But can you give us some indication of your visibility and confidence in the step up of installation volumes in H2, and if you see any emerging risks or opportunity to deliver there. The second question relates to the efficiency opportunities in your service business. I note that you have 15,000 people or so in service, but some of their activities are being, if you like, pushed to deal with your warranty issues in the power solutions business, therefore consuming employee time in service. So my question would be, what opportunity is there to improve the efficiency of service as you work through your warranty backlogs and therefore the people have more time to deal with your service activity?

speaker
Hans
Chief Financial Officer

So I'll take the first one here, Will, and then I guess Henrik might take the next one. So you're absolutely right that we are expecting to see a very busy second half of the year. And you're also right that we are seeing that prices are compensating for lower volumes. In some ways, that's also a good thing, right? Because then effectively for the same amount of years, you are doing less than what you otherwise would be doing. And we have an organization that has been used to installing quite a few number of megawatts in very busy periods. But I don't think we are shy of admitting that it looks set to be a very busy set of quarters, Q3 and Q4. And if you look at, say, the implied power solutions guidance we have, you can basically go and calculate it right. You will see that it's very back and loaded. But as we have also pointed to, we are seeing good performance there. We are seeing an organization that increasingly delivers in the right way. So that is what, when we look at it, gives us the confidence, so to say, that things heading in the direction that they are heading, and that's a good direction, that allows them to install what we're expecting for them to install in the second half of the year. But it is definitely true that when you look at the implied guidance, I don't know if you take midpoint to midpoint or whatever way you're looking at it, it is very busy. But that's what we expect now.

speaker
Henrik Andersen
Chief Executive Officer

And on the efficiencies and so-called also inefficiencies, I think you're right in the sense of when you work through the last couple of years, we have seen that we are investing heavily together with the 15,000 plus employees across the service business and in some areas than others, they are more affected by it. That triggers some of those comparisons and we are doing that not only country on country, but also cluster for cluster on it. And in there, there are what we also describe as inefficiencies. We are measuring that in several ways. Of course, we are measuring it as a progress on the warranty, and that goes into the repair and upgrade, as we are also mentioning here. But it also goes in the parallel thinking of what do we have as a backlog of tasks for the normal business. And, of course, that is a comparison we are working. And, of course, that task backlog should trend towards zero But in the scope and the size of our business across, the task backlog will never be zero. So for us, we can see that task backlog has been higher. It's trending downwards, and that's good for us as well, because that indicates that we are getting the efficiencies in parts of the service business back, but there are also parts of the service business where we are still having it outstanding. That, I can promise you, we are on, and we are on it both from a cluster and a country perspective, which is why we are addressing it and saying it's in America as it's in the main part of Europe right now.

speaker
William Mackey
Analyst, Kepler Cheuvreux

Thank you.

speaker
Operator
Conference Operator

The next question comes from the line of Daniel Hagland, ABG. Please go ahead.

speaker
Daniel Hagland
Analyst, ABG

Hi, guys. So I have two questions. My first question is, compared to the Q1 guidance you gave, the implicit guidance for power solution is materially up, I think it's up more than 60% if you look at implied full year EBIT for that segment. So what has changed versus Q1 to make that upgrade? Because I guess you already knew what projects were going to be delivered in the second half at the Q1 presentation. So that's the first question. The second question is you talked a little bit about how small revenue quarters you will also see lower than the targeted 10% margin in 2025, and that obviously makes sense from an operational leverage perspective. But if we more look at underlying profitability in terms of trying to estimate a gross margin excluding warranty costs. Should, when we get up to a higher level in Q in second half this year, should we assume that it kind of stays at that level, or how should we think about that? Thank you.

speaker
Hans
Chief Financial Officer

Yeah, so I'll start here. You're absolutely right that we are seeing that our power solutions business is performing better. I was mentioning a bit also in Will's question. And I guess what we can say there is that we see better execution than what we thought would be the case. We are seeing less risks materialize as well. I'd like to remind you that we have been going through quite a rough patch where it has been very difficult to predict exactly how things would play out in supply chain, logistics, at the sites, transport, and a lot of other things. And whilst we are seeing a more uncertain environment there, as Henrik pointed to, I would generally say, as I also said before, that we are seeing the execution machine, so to say, coming up in gear. Of course, it also needs to be in higher gear based on what it needs to do later in the year. But I'll say, relatively speaking, we are seeing better execution and, say, risks not materializing to an extent that allows us to then form the view that we have done on the second part of the year. It's, of course, also, in some ways you can argue, it is the trajectory that we would like to be on, but I think it's also good to see in the first half of the year, and based on what we know now, that it's also confirmed that that's the direction it's taking. Yeah, and then on your second question, let me just see if I can remind myself exactly of that one. I guess, If you're talking to the underlying profitability of what's going on there, as I said, we are executing still on projects this year that comes from the old backlog. And we're generally seeing that our business continues to improve. So if you look at it underneath, we are expecting also an underlying profitability journey to continue into 2025. But of course, there are all kinds of effects that plays into this. There's leverage. And even when you look at our numbers, there's also leverage in the gross profit that we are reporting, for instance. But all things else equal, our hope would certainly be that we can continue to see this underlying improvement in the profitability journey we're on.

speaker
Daniel Hagland
Analyst, ABG

Just to be totally clear there, should we expect that there will be quarters of low-margin projects also in 2025, or given that you will finish the low-margin projects this year, 2025, the differences in margins throughout the quarters will be more due to operational leverage?

speaker
Hans
Chief Financial Officer

This comes back to something that, I mean, we have almost forgotten it by now, but where there used to be also a situation where you didn't have all this turmoil, but where also in the past we have had good quarters, bad quarters, quarters with good projects, bad projects. that will always be the nature of what we sit with. So you can have those fluctuations. So I think we are seeing we are getting back to that type of situation, but that does not mean that you can get hit in a small quarter. If you have a small or a bad project in that quarter still, that might impact the numbers. But overall, we are certainly seeing that the profitability should continue to come up.

speaker
Henrik Andersen
Chief Executive Officer

I think what Hans was saying was that you see a change in gross margin, and that's the most important thing, and we're happy with that, and there will always be swings around that higher level.

speaker
Daniel Hagland
Analyst, ABG

Very good. Thank you.

speaker
Operator
Conference Operator

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

speaker
Kasper Blom
Analyst, Danske Bank

Thank you very much. A couple of questions from my side as well. First, I was hoping you could talk a little bit to the offshore ramp-up that you're doing. You mentioned for a while now that you expect to have the zero production of the 236 in 2025. But should we think about this as something that just starts 1st of January and then goes on through the year? That's sort of part one of that question. The other is that where in the past you at one point had a target of 3 billion euros of offshore sales, next year I think maybe today we're expecting more like 2 billion or so. Could you speak to where will that take the offshore business in terms of profitability? Will it be visible in the group profitability next year? And also sort of what is the kind of like hurdle rate in terms of activity to see the offshore business hopefully contributing to a group margin of these around 10%? That's the first question, please.

speaker
Henrik Andersen
Chief Executive Officer

Thanks, Kasper, quite a lot. And I'm pretty sure as a Danish person that is driving around, you will probably have noticed that there are heavily activities in and around both Alenio and Anaksko where the prime ramp up is going on. So the ramp up is happening as we are speaking and it's not happening 1st of January because then I'm pretty sure we will be way too late in some of the deliveries. You also seen that we put prototype number two up in the Danish West Coast. So we are doing that and that means there is a lot of ramp up going on, not only in serial manufacturing, but also in training and really getting service technicians used to be in that offshore turbine. So how do you change things? So that's happening as we speak. And of course, you can say, considering that we are in a year where we are absorbing those ramp-up costs and we are also absorbing those fixed capacity costs, as we spoke about, that's also going to weigh on 2024 in that sense. When we look towards 2025, I think we have over the last quarters strongly hinted that the 3 billion, there's no need to pursue the 3 billion because we ended up probably having somewhere around 2 billion with the two projects we have in the pipeline it's very visible because it's hidite and it's baltic's respectively in germany and in poland and and that is not yet for for scale because there is that much going on when you are ramping up both from a tooling from service technicians and construction teams So the first 2 billion has all of the incremental investments into setting it up for the first time. So when we then start building beyond 2 billion, then we will all start having a meaningful margin accretion. But it's not in 25 for sure.

speaker
Kasper Blom
Analyst, Danske Bank

Okay, that's very good, Henrik. Then my second question goes to your warranty provisions. As you mentioned, Hans, 4.3% of revenue here in the quarter. I suppose one could be cheeky and adjust the revenue for the 312 million and then you get down to 3.9%. Is that sort of like a turning point and are you still... How could you say optimistic in reaching the 3% level next year?

speaker
Hans
Chief Financial Officer

So first of all, you're talking about what is effectively very small numbers when you sit on a quarter like this with a 3 point something billion euros of revenue and talk the decimal of 4.3 versus implied 3.9 and that kind of stuff. So let's be clear, it's really not... something that necessarily is super meaningful. What I think is important is, and I see where you're coming from, and yes, I would like to say that it's good to see that it's coming down, relatively speaking, to where we were before. So we are optimistic still. I guess that's a message that we can continue to take it down. And as we've also highlighted, the target is to get it to around 3%. That is still what we're working on. And in that sense, this quarter is a good data point that things are heading very much in the right direction.

speaker
Akash Gupta
Analyst, JPMorgan

So, yeah. Okay. Great. Thanks a lot.

speaker
Operator
Conference Operator

The next question comes from the line of Akash Gupta, JP Morgan. Please go ahead.

speaker
Akash Gupta
Analyst, JPMorgan

Yes, hi. Good morning, and thanks for your time. I have two as well. The first one I have is on the balance sheet. If I look at the solvency ratio, which fell to all-time low level of 12.4%, and when we compared this with your competitors, your level is quite below your peers and what you used to target in all times. We have a big offshore ramp ahead of us and also the industry is going to grow from the levels that we are at today. So the question I have is that how do you see your balance sheet in order to participate in the industry growth and successfully delivering on offshore ramp or anything that you would like to highlight? The second question, I have it on development unit. So my understanding previously was that you do early stage development and you don't construct projects on your own balance sheet in the development unit. But I see today you talked about commissioning data wind project. So maybe if you can clarify, is this on your balance sheet or is this a project that has been sold to customer and you are just mentioning because this came out of development unit? Thank you.

speaker
Henrik Andersen
Chief Executive Officer

Last thing first, announced well and long ago in the US, so it is on behalf of customers. So no worries with that, Akash. So we're not spending unnecessary capital on our balance sheet on these things. on the solvency i think you bring up here and you're also therefore asking should there be any adjustments to capital structure and the and the clear and short answer is no it's not an it's not an issue we also had the conversations with with some of you in in four quarters ago when our leverage kpi of course was significantly higher And you will also take a note of that after two quarters this year where you're not having a high net profit. But if you then did do a trajectory with the coming quarters where you have earnings picking up, then that is actually the best way of doing a recurring and a positive to your solvency ratio. So the solvency ratio is not at the current level any issue. And the retained earnings, of course, will help in that setting on the solvency as well.

speaker
Daniel Hagland
Analyst, ABG

Thank you.

speaker
Operator
Conference Operator

The next question comes from the line of Deepa Venkateswaran Bernstein. Please go ahead.

speaker
Deepa Venkateswaran
Analyst, Bernstein

Thank you for taking my questions. So I have two questions both on the service business. So firstly, I just wanted to discuss the outlook on the growth. Clearly, you've got the contract asset buildup, which should stabilize and start falling. So could you maybe talk about near term, what your expectations are on the top line growth for that business. And then the second question I had is on the margin. So could you clarify whether the backlog service margin is around this 20, 21% mark, or is it a different number? And then, Henrik, you answered on Monday that 25% is still a target. Can you elaborate anything on what's the time frame? Is it 2030, 2028? I mean, anything. And what are the sort of actions you would need to go from this 21% to 25? So, yeah, I think those are the two questions. Thank you.

speaker
Hans
Chief Financial Officer

So first, on the growth trajectory, of course, there is a link to the service asset you have on the balance sheet. But generally speaking, of course, we are expecting for the service business to continue to grow overall. That is clear. And I should point to the fact that there are many elements that goes into, say, how the service to business growth trajectory looks like. It's also a function, for instance, of how many turbines you install, how much transactional sales you have, and a lot of other things. And we'll get back to, of course, what that means then for next year once we're closer to that. But again, that is the expectation. Then your second question went to the backlog margin.

speaker
Deepa Venkateswaran
Analyst, Bernstein

Could you just be a bit more specific, like maybe less than 5%? I mean, something ballpark like for the next two to three years, not just for 2025, but more. Because I think the census is sitting at an 8% growth at least pre the earnings. So just wondering maybe with reference to that.

speaker
Hans
Chief Financial Officer

So we have said on the long term, we have said that we would like to grow, say, market growth plus, and that would indicate an 8% to 10% level. That is what we have said, and that's what we're looking at on the growth side. I hope that gives you, say, a degree of indication of this. Then on the second question on the backlog margin, I should say we are not disclosing the margin in the backlog. But as we have also pointed to, of course, right now, when you look at where we are, we are saying also that we expect for the service business that it can deliver on the short-term margin levels that are on par with the margin levels that we have been carrying out in past and prior quarters. And of course, that gives you kind of an indication of where we are. You also point correctly to the fact that we have a 25% ambition level. And, of course, that's what we're then targeting on the long term. And there are various initiatives that, say, are put in place and that we're working on to get us to that level. And speaking to the growth part of it as well, of course, this is an EBIT margin target. So the fact that the business continues to grow also means that there's a degree of operational leverage in the business itself that also helps in getting to that ambition.

speaker
Operator
Conference Operator

Okay, thank you. The next question comes from the line of Colin Moody, RBC Capital Markets. Please go ahead.

speaker
Colin Moody
Analyst, RBC Capital Markets

Hi, all. Thanks for taking my questions. I wanted to ask about your conversation with customers on their willingness to invest, perhaps broken down by geography, i.e. U.S. versus Europe versus APAC. Perhaps then, as a follow-up to that, could you give a little bit more specificity on the kind of timeframe view on when the U.S. orders should start to pick up again? Is it more like H2 this year or more like 2025? Perhaps this is a kind of quick follow-up then to the U.S. market question. Specifically, the IRA and the 45X tax credit is a more kind of long-term question. Do you get to hold on to much of those benefits or is the market situation such that you have to share these with customers? Thank you.

speaker
Henrik Andersen
Chief Executive Officer

Last thing first, as it is a tight market in the US, I think here there are not that many, there are basically a few of us delivering. So it comes down to a question between us and customers on an individual basis. So talking in general there, I think here it's a market that works well. And right now it's also a ramp market where there is, to a certain extent, some capacity discussions with customers. And therefore, I think we are sharing and we are taking the orders we are happy with from a commercial standpoint in the U.S. And I'm sure everyone else are doing and prioritizing the same. when it comes to customer conversations in the U.S., you've seen a number of U.S. orders coming through actually now in Q3. Some of those might have been scheduled to do in Q2. So I think the U.S. market is still progressing. We don't see generally a stop, actually the opposite. So people are keen to progress their projects but of course they're also only keen to progress their projects if they have all full permitting and also the grids access sorted so i think those are the those are some of the bottlenecks right now and i don't i don't see any acceleration or the acceleration in terms of the of the ira considering 5th of november coming around so But as I said, I've been spending over the next two weeks substantial time in the U.S. as well. So I'm pretty sure an update on that. But generally here, our commercial team is still very busy in the U.S. of planning.

speaker
Colin Moody
Analyst, RBC Capital Markets

Thanks. That's very clear. Just on that, any kind of comments on the investment sentiment in the other regions, APAC and EMEA?

speaker
Henrik Andersen
Chief Executive Officer

I think EMEA speaks its own language. It's ticking off, but it is also within EU 2026. It's a broad range. Some countries are doing not a lot. Other countries are re-emerging as countries and you can see some of the orders specifically taking in some countries where that comes out a bit of a positive now they restarted and I think you sit in a place in the UK where definitely what has been announced and done probably in the last couple or the first month and a half of a new government seems to open a onshore market full and potentially we will know a bit more when we see the outcome of CFD round six on the offshore as well. But that's a good hint of where we are moving. And of course, then in Asia Pacific, we've seen various things coming through, sort of reasonable thing on both New Zealand and Australia. And Australia is working through their new policy and their new regime of auction, which, yeah, I was in Australia in, in june so therefore it's it's imminent in the discussion in and around the organization of that and the government in australia are very much leaning towards a new program that takes five ten years aim for for absolutely accelerating renewables so positive there we got a great team there and as you can also see we also have a tradition for executing on our projects well in in australia

speaker
Colin Moody
Analyst, RBC Capital Markets

Very clear. Thank you.

speaker
Operator
Conference Operator

The next question comes from the line of Sebastian Groh, BNP Paribas. Please go ahead.

speaker
Sebastian Groh
Analyst, BNP Paribas

Good morning. Thanks for taking my questions. I also have two. The first one would be on Germany. Installations are apparently up about 20% here to date. Considering your historical market share of about 35% plus and the significant acceleration we have seen in allocated option volumes over time, can you share with us how you see volumes progressing for you over time? And could this eventually really become a three gigawatt delivery market for you, if you could specify your thoughts around that one? And as a quick follow-up on offshore, as you labeled these wage inflation for the quarter two adjustment in the service business, I'd be interested whether we earlier indicated that you detect on the power solutions business in 2025 as further expanded as of late. And maybe you can also provide a quick update on how the over-hiring activity is going in Poland.

speaker
Henrik Andersen
Chief Executive Officer

I think the second question I'll come back to, and I'm not sure I heard all of it, but I'll try to answer it in the best possible order. Just correct me, Sebastian. I think on the German markets, I think it's on a nice development. We come from something three years ago that was very low. And then we have seen an acceleration. And I think maybe you shouldn't ask me about the size of market and auctions and permitting, but we can generally see that the auctions are taking place. They're getting permitting as well. And the German government has worked out with the Department of Energy and Planning a modus operandus that works with high number of projects being approved. and going through. I think it's important also for a lot of European countries to actually pick up that way of working because it does add to the volume. Could it become a three or four gigawatt market? I think the market will. Then on terms of Vestas' market share, we got a good market. We have been there for a long history and long tradition for doing both the projects but also looking well after customers on on the maintenance and service afterwards. So we're not moving the foot away from the throttle there. And then on the... Can I quickly come in?

speaker
Sebastian Groh
Analyst, BNP Paribas

I was specifically talking about your delivery volume, which might head towards 3 gigawatts. So the market is apparently going towards the direction of 6 to 8 gigs, probably in the not too distant future. I was curious to get some more color around your order taking the pipeline, etc.

speaker
Henrik Andersen
Chief Executive Officer

Yeah, you know me well enough, Sebastian, I'm not going to hand out your splits in a market where there are potentially two or two and a half people looking at it right now. So I think we will much prefer to say individual markets, then that is something we are in the middle of it. We are positive there. And I won't give you a split of what we expect because that is flagging to any competitor that sits on the same call as we are now. So that one... Your guess, but you can see we got our historical markets here and we are working towards that because the quality is there of our turbines and solutions.

speaker
Sebastian Groh
Analyst, BNP Paribas

Okay, for the offshore part.

speaker
Henrik Andersen
Chief Executive Officer

And for the offshore parts, I think on getting the service and the technicians and also the factories ramped up, it's something we are working on right now. Offshore is not new for us in this part of the world, but the turbine and the solution we are installing is, of course, new. So therefore... A lot of the service and the service techniques are being onboarded also in some of our existing parts, which then will be trained and be working on that and then be passed on to also when we have the construction done during 25 of the two projects there. So the real important here is to be slightly ahead on onboarding and slightly ahead on training because that's the whole aspect of the scale and the ramp up of offshore. And that is going to have a dilutive effect for 2025.

speaker
Sebastian Groh
Analyst, BNP Paribas

Sorry for specifying later in this point, but given what happened really in the service business, has this sort of further diluted the overall outlook then for the offshore business as part of our solutions because of wage inflation at least?

speaker
Henrik Andersen
Chief Executive Officer

Now we are mixing areas here. Service business at a site, this one we are looking into, and this one is priced both from a solution point and other stuff. So that's not – there we are trying to draw areas together that shouldn't be drawn together.

speaker
Sebastian Groh
Analyst, BNP Paribas

Okay, thank you.

speaker
Operator
Conference Operator

The next question comes from the line of Vlad Sertievski from Barclays. Please go ahead.

speaker
Vlad Sertievski
Analyst, Barclays

Yes, good morning, gentlemen. Thank you very much for the opportunity. Hopefully, two quick housekeeping questions, please. First, could you explain the underlying increase in unbilled revenue in the second quarter? Service reset reduced contract assets by about $300 million, but actual reduction was about $140 million, which means excluding this reset, you continue to book more revenue than you invoice to customers. So would you be able to give us a rough timeline? When do you think invoicing... could start matching revenue. That's the first one. And quickly, second one. You have a developing project in progress asset, which reached about a billion euros this quarter. It's roughly three times above what it used to be historically. Could you give us some idea if you have capitalized some of the offshore ramp-up costs into this asset, when are you planning to start amortizing this billion, and what sort of amortization increase per year, could it lead to? Thank you very much.

speaker
Hans
Chief Financial Officer

Yeah, so I'll give it a go. On the first one, on the contract asset, you're absolutely right that, of course, we are trying to, say, assess what kind of development should we be expecting from that. And, of course, over time, we would expect for that to be, say, flattening out, coming down. That is the expectation we're seeing. And, of course, we also see now by virtue of, say, the adjustment that we've done here, that that has had an effect on that asset. But as I said, there is an expectation that this is going to be flattening out and then eventually it's going to be coming down as well. But there are many reasons why you can have this. So, of course, they influence on how that develops. On the development project in offshore and the capitalization of that, I would expect that we start to, how do you say, to depreciate on that quite soon as we start to do the installations. I don't think we have made specific disclosures on what that level would be. But of course, given the size of the project, it's a quite significant amount that we will need to depreciate as a consequence of that. On the other hand, we are also expecting, of course, for the offshore business to get to a sizable amount. But getting back to what Henrik was talking to earlier on the size of the business, for instance, in 2025, of course, this is not something that necessarily works in our favor when you have a suboptimal scale of the business in terms of, again, how big it is in a year like that when you are at, say, 2 billion plus euros of revenue.

speaker
Vlad Sertievski
Analyst, Barclays

That's very clear. Thank you very much.

speaker
Operator
Conference Operator

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

speaker
Klaus Almer
Analyst, Nordea

Thank you. Yeah, also some questions from my side. The first is about the pipeline being converted to firm orders. Henrik, you mentioned that some projects have been postponed or delayed from Q2 into Q3. Is there any common reason why that happened, or is it just the normal quarterly volatility? That would be the first one.

speaker
Henrik Andersen
Chief Executive Officer

When you said in a year and you take last year as well, Klaus, you also saw that we ended plus 18 gigawatt. There will always be deviations. And of course, then generally when you see something coming through in the first couple of weeks in July, you know some of those just passed the line in the sand of the 30th of June. So there is no other reason that generally we would like to have it in the quarter if it's possible, because that also puts a lot more security and clear on the execution for the future. But on the other hand, it's more important to get it in and whether it's in Q2 or Q3. So I think the ones that picked up that it seems like the July and the first couple of weeks here in August have actually contributed higher than what you would normally see. is a good indication of sometimes there is just as a spillover between quarters. I won't say this sort of a how we we generally say I'm still more focused on what the overall gigawatt says on the 31st of December, because that I think is an important number. And you can see that number developing in our favor when our backlog has gone from approximately 20 billion to now 28 billion in the in the power solution. And that's really for us the main point to follow right now, also with the better priced backlog. That makes sense.

speaker
Klaus Almer
Analyst, Nordea

Then if you try to zoom in on the U.S. market, you have given a few comments about this very important market. Is there any difference in your talks with, let's say, smaller or larger developers, utilities, et cetera, et cetera, that we should be aware of? Especially around the U.S.

speaker
Henrik Andersen
Chief Executive Officer

edition, obviously. Yeah, no, I think you can sort of say here, you probably also noticed today that Bill Furman had to leave our board again. He joins a player in the U.S. market as well. And of course, if he has to leave a board of investors, that also means that there is a commercial discussion with both regulated utilities and and infrastructure and typically developers. I will say in the US, still the same. I think we all see that there is election coming and we all see the uncertainty around it. But I will also say here the priority to critical infrastructure in the US is also pretty outspoken. Then maybe there's a different way of saying it between candidates. But I think between the two parties, there is a recognition of that it's the drive for the same. There'll be a lot of uncertainties until the 5th of November. But we generally don't see customers slowing down or accelerating their projects due to this date coming up because the legislation is firmly there, at least when it comes to the onshore.

speaker
Klaus Almer
Analyst, Nordea

Okay. Do you think, let's just assume that Trump will become the president, that some developers will try to secure firm orders before a possible change to the legislation? Yeah, IRA or the PTC scheme, or is it like many others are saying, this has no impact on your insure?

speaker
Henrik Andersen
Chief Executive Officer

Klaus, I won't add to this speculation. I simply don't know. And as I said here, I'm seeing customers over the next 10 days, a lot of them in the US, and I'm sure I'll have a better answer in a couple of weeks' time. But generally, there is a real focus on the commercial development of projects. And if you are right in your assumption, we will also see on the early development of projects that that will be slowing down. That's not the case either. so i i don't think i think i think everyone in all the states are preparing for more projects more energy to be generated and don't forget there's still the offtake there's still the offtake from the data centers the ai the all of that and don't forget the green hydrogen the ammonia and other parts are out there in the in the states so so we are going to see and some of that is of course coming from major infrastructure build-outs in the US. So I can't say much else, Claus, right now. And it is lumpy when you have sizes of projects of that nature.

speaker
Klaus Almer
Analyst, Nordea

That's fair enough. Then I will try to test you on Australia. Henrik, you have been out in the past making some estimates for when orders will come. And now you've just been in Australia. Would it be this year we should see some of these larger orders that you have been talking about in the past?

speaker
Henrik Andersen
Chief Executive Officer

I think we just had one. So that was probably why I mentioned it. No, I think Australia here, it's been a stop and a go. It was not intended to be a stop and a go, and it wasn't intended to be a stop and a go from the government either. But the way, if you ask Mr. Market to put the electricity price as a floor and a ceiling in an auction, then it just takes longer time. But if you look at the turnover or the volume of projects that has come into the first auction, they are in an enormous luxury position because the auction has received an enormous attention with volume. So if that volume doesn't come, as it is a double-digit gigawatt number that has come into the auction as the first one, then the auction will be repeated. But that also means the Australia is ramping up. If you visit AMO, the grid company with the CEO, he will also talk to that he's preparing for a grid company in in australia that is much more receptive and also ready to receive that volume um so as i learned from the beating you gave me last year of being poor in in predicting timing i will i'll refrain from doing that but at least i will i will say the momentum from 577 on on the golden plains probably counts in my favor in second quarter right

speaker
Klaus Almer
Analyst, Nordea

Fair enough. That was all from my side. Thanks.

speaker
Operator
Conference Operator

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

speaker
Ben Healan
Analyst, Bank of America

Yes. Morning, guys. Thank you for squeezing me in. The primary question I had was around the cash generation that you've seen in the services business over the last couple of years and any kind of general expectations for this year. Yeah, that's primarily it.

speaker
Hans
Chief Financial Officer

Yeah, so generally we would think of our service business as a good cash business also. Whilst we haven't disclosed specific figures on the cash flow in the business, that's how we would think about it. So I don't know how much more specific I can be there, given that that is not something that we are outright informing about. But that's kind of the logic we're having. And of course, With the kind of profitability we're looking at, referring back to what we discussed earlier on, that also gives an indication of what it is that we're expecting from the business. It's a good, solid business. And as I pointed to earlier on also, the effect from the adjustment we're doing is, for instance, non-cash. So, I mean, that's about as much as I think we can talk about it here.

speaker
Ben Healan
Analyst, Bank of America

Super clear. Thank you. And a quick follow-up, I think in response to one of the questions earlier, you said that there were none of these, you know, in quotes, kind of bad projects or underperforming projects in 2025. And when we think about it, it should just be about kind of operating leverage in the given quarters. So is that true? There's none of these kind of badly performing contracts in 2025 or is it a very low number?

speaker
Hans
Chief Financial Officer

So the way to think about it is, as I said earlier on, there's always going to be, say, a distribution of different types of projects in a business like ours. Some are good, some are bad. But we are down to, say, a more normalized profile now compared to what has been the case in recent years. So that's how you think about it. It doesn't mean that you're not once in a while going to run into a dog of a project. That might happen. But it's a normalized thing compared to where we have been in recent years.

speaker
Ben Healan
Analyst, Bank of America

Super clear. Thank you, Hans.

speaker
Operator
Conference Operator

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

speaker
Sean McLoughlin
Analyst, HSBC

Thank you for taking my questions. On offshore, I could now notice in Q2 power solutions revenues, this is the highest proportion from offshore that we've seen for many quarters. So I'm wondering, how did offshore contribute to that positive margin in power solutions in Q2? And how important is it to that 9% margin assumption for the second half? Should we be thinking despite offshore wind or because of offshore wind? And the second part of the question then is, you've also mentioned a higher drag in 2025 from offshore. How should we think about the profitability bridge from today in offshore to the 2 billion top line guide for 2025? Thank you.

speaker
Henrik Andersen
Chief Executive Officer

Thank you, Sean. On the first question, it's despite, because if we look at it, what we are coming with now is we're sitting with a couple of projects that is related to a turbine type that is... basically running out. It's the V 174. So therefore, it's despite and of course, it's execution. And you also appreciate in some of those quarter, it becomes lumpy, especially when you compare it. But you will also see compare, for instance, on the sustainability that we actually can see that there is a lower CO2 footprint because we are using less of those ships. But it is, as you are saying, it's a smaller proportion and you shouldn't expect any of that uptick in the second half of the year coming positively from the remaining part of those projects. Then on the 25, as I said, I will still try to refrain from giving more specific on 25 outside that there is not a positive margin accretive effect from the approximately 2 billion in 2025. It is simply not possible in a year where you're ramping up for two projects, because back to Vlad's point also, there will be depreciations hitting a business unit that is only having 2 billion approximately in turnover. So, therefore, when you do that EBIT calculation, it will be diluted for your target for 25. And I haven't, therefore, set any target for 25, but it will be diluted to the target anyway to the target.

speaker
Sebastian Groh
Analyst, BNP Paribas

That's helpful. Thank you.

speaker
Operator
Conference Operator

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

speaker
Henry Tarr
Analyst, Berenberg

Hi, and thanks for taking my question. Two quick ones. Do you see any tension, I guess, between the ASPs and market share at this point? And I guess it's just, you know, is the market still one where it's extremely sort of competitive? And if you come in and sort of, you know, you see your competitors being rational, et cetera, that would be helpful, right? And then just the second question, I guess, on the service provision. I know you've talked a lot about it. Just in terms of sort of tracking this going forward, the sort of health of the costs, et cetera, should we be looking at warranty provision plus LPF plus cash conversion as a sort of indicator on costs here running on track to your estimate? Thank you.

speaker
Henrik Andersen
Chief Executive Officer

Thanks, Henry. If I take the first one on the markets here and versus ASP, I think we for a very, very long time and also quarter after quarter have said it is absolutely quality and value over volume. And therefore for us, we will look at that. Yes, we look at our market share as a reflection and as an outcome of it, but it's not the driver. The driver is the health of the backlog, and we can also see the rest of the industry has had, for obvious reasons, to do exactly the same. So with that, we continue what we are on. We're very pleased with it. And for the first time, I think, quarter on quarter for this time on the power solution, you can see the effect of it, and it's actually paying off.

speaker
Hans
Chief Financial Officer

Yeah, and then on the tracking, so to say, on the development in the service business, I think the best way of looking at that would be to see what is the margin that we are delivering quarter on quarter. I guess that is the best indicator that things are, say, heading in the right direction and on track. Of course, we can think about all kinds of things, but at the end of the day, it comes down to a margin. And so, seeing from our perspective, the best way of thinking about this is the service margin that you're looking at. And then, yes, of course, it is also helpful if you see that LPF comes down, let's say the warranty provisions come down, although the provisions are a function of work that needs to go on later, right? So the provisions actually indicate work that needs to happen out there. So there's a delay factor in that. And then just let me point to the last point on that. It's not a provision we're making. It's a cost update we are making, just a small technical point.

speaker
Henrik Andersen
Chief Executive Officer

And with that, if I could ask for the last questions to this conference call operator.

speaker
Operator
Conference Operator

Would you like to take the next question?

speaker
Henrik Andersen
Chief Executive Officer

Yes, please. If we make that the last question in the conference call, so please go ahead, the next question operator.

speaker
Operator
Conference Operator

Next question is from Lucas Ferhani from Jefferies. Please go ahead.

speaker
Lucas Ferhani
Analyst, Jefferies

Good morning. Thank you for the question. I just had one on service more related to offshore. Just notice slightly shorter contract duration in the few offshore orders you have. It seems like more of a warranty and what you call long-term support. Will servicing offshore be more the spare parts agreement rather than kind of full coverage that you can provide in And also, as we kind of saw and knew before, there's a lot of assumptions that go into the accounting when it comes to the service business. How do you see that for offshore where you have even more moving parts when it comes to servicing offshore wind turbines? Thank you.

speaker
Henrik Andersen
Chief Executive Officer

Thank you, Lukas, for your question. And in reality here, I think we are as an industry, not just from a Vestas point of view, we are ramping up in an industry and a business area that is still in its early days. I think if you ask somebody three or five years ago, there was a clear perception of that the service structure within offshore companies would be different, would be much shorter, because there will be a drive for especially customers and others to at some point in time take over the self-provision of services in offshore. I think that has raised in the last couple of years more question to is that really the right structure? Because if you end as a partner in there with limited megawatt or gigawatt or potentially only one project, then then the the turbine provider and the partner there will be much better because of course we will have several projects coming out from the same harbour so i don't think necessarily the the sort of the estimations of ramp and scale and maturity gives us a clear answer yet how that will be we can see it certain customers would like to go for longer in in offshore the my contract might change under the the 15 20 years break But then there's also somebody who will say, well, we'll run for five years and then potentially the remaining years will be much more on the components, assistance, technology. So there are various parts of the service which deviate probably from the onshore. But I would also say there are things in the offshore that indicates how the market is developing, that it comes more and look more like the onshore when we look five, ten years ahead on the customer structure.

speaker
Lucas Ferhani
Analyst, Jefferies

Thank you.

speaker
Henrik Andersen
Chief Executive Officer

Okay. With that, thank you so much, everyone. I know we've given you and we're giving definitely also ourselves a different week than we probably expected. I hope we'll see many of you over the coming days and then we can have a lot more conversations directly face-to-face. With that, I would just thank for this conference call and wish you a nice day from here.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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