Vestas Wind Systems A/S

Good morning and welcome to our presentation of our Q1 for 2025. And let me by here also extend a huge gratitude and thank you to our customers across the world and especially in the US for the very active discussions and also our colleagues for a very strong start of the year. With that, I would like to go to the key highlights. So the key highlights, we ended Q1 with a revenue of 3.5 billion euros. That's an increase of 29% year-on-year driven by our higher activity compared to Q1 last year and also the higher average pricing in power solutions. The EBIT margin ended at positive 0.4%, positive operating profit in Q1, despite normally the seasonal low activity in Q1, driven again by revenue growth and also higher project profitability. The order intake was 3.1 gigawatts. The order intake increased by 36% year on year, driven by strong momentum in offshore particularly and also in EMEA onshore. The manufacturing ramp-up and the service recovery plan remain key, and it is absolutely key of our operating priorities also for the coming quarters. So the onshore and offshore ramp-up is progressing, and the service completes its first quarter of its recovery plan as we speak. Then we have a new CFO starting 1st of June. We are onboarding Jakob Vege Larsen. He is in the planning and he is ready to join and meet all of you when we get to the roadshow in August post our Q2 release in beginning of August. So soon a very warm welcome to Jakob who has his official contract not the 1st of June, because I actually think it's a Sunday, but the 2nd of June. So, Jakob, we look forward to welcome you to Estes. With that, we'll look a bit more on the orders and the markets we are operating in. It goes without saying that wind still holds the same key to both affordability, security and sustainability, as we have highlighted in here. And I think we are acutely reminded of that throughout the first four months of this year. If we look at the global environment, inflation, raw materials and transport costs are generally stable, but they, of course, added an extra added dimension of potentially also some significant tariff that could increase costs in some of these. We see the ongoing geopolitical and trade volatility leading to some sort of more form of regionalization and also adds to the uncertainty, especially when we look at our colleagues in the U.S. The market environment, when we look at that, there is a very high focus on energy security and affordability. I think we have seen also in Europe examples of that and how important it is to have societies running with stable energy supply. The grid investment is prioritized in key markets, and we see that more and more. And then also the permitting improving in some markets, but overall permitting auctions and market design are still challenging and are being discussed actively. I think a positive example of some of this is also seeing a home country to us, which is in Denmark, where they have resubmitted the auctions for offshore after failing in Q4 last year. We are actually now seeing new terms coming out, which, of course, I'm guessing will attract good attention from the main European developers. On the project level, we have had a quarter here. Proud to say that the team has executed well on our deliveries across the markets, but it is also clear that there is some regional disruptions to supply chain, at least at risk, and particularly in this around in North America with U.S. as a core tension for us. When we then look at the market share, this is the time of the year where we look with the numbers that has come in. And of course, here we continue to lead the industry when we look at global onshore, offshore installations, excluding China. The global installation decreased from 37 gigawatt in 24 years. or two 37 gigawatt in 24 from 40 gigawatt in 23. We maintain a leading position and we continue to emphasize our value over volume. Secondly, also industry maturity is improving. Developers and turbine suppliers are being more selective and focusing on building high quality value creating projects and also healthy backlogs. You'll see now our market share has gone from 28% to 30%. And of course, we will continue to follow it. But as I said, still we prioritize value over volume. We then go to power solution in the quarter. So higher order intake year on year. When we look at that, the order intake of 3.1 gigawatt was up 36% compared to last year. The main reason for the increase is higher order intake in offshore and onshore and mere while the US is awaiting policy clarity. It is the largest offshore order in the quarter was one gigawatt. It's the Norflik One project in Germany, which will employ Vestas' 236 15 megawatt turbine. The largest onshore order in the quarter was the 384 megawatt Tilligul project in Ukraine. Once commissioned, the wind farm will generate enough clean energy to power more than 200,000 homes a year, making it the largest wind energy project in Ukraine. Personally, it makes me incredibly proud to both have the established relationship with DTEK, between DTEK investors through many years, not also with the personal relationship to the CEO, Maxim, who I spent an awful lot of time in making some of these things possible. And it goes without saying, our two teams made this possible to sign and also start manufacturing and transporting into Ukraine. The ASP increased to Euro 1.4 million per megawatt in Q1 compared to Euro 1.18 million per megawatt in the prior quarter. The increase was driven by a larger share of offshore orders and orders with a larger scope. So this is, don't forget, an average of many things in a quarter. We're happy with it, and it also supports the strategy we are laying out and following rigorously now for the last years. We also see in the breakdown to the right that U.S. only account for 189 megawatt in order intake, illustrating the natural await position for condition to be clearer on policy and also on tariffs in the U.S. We are not disappointed over it. We expected it. But we can also see that we are working diligently with our customers to make that clear, and that will become clearer in the coming quarters. We then go to service in Q1. We are now one quarter into the service recovery plan. So quarter here, we ended the quarter with a backlog increase to almost 37 billion, up from 34 billion a year ago. The service reached 157 gigawatt under service compared to 149 gigawatt a year ago, solidifying our position as the largest service business in the industry. Westers is now one quarter into the service recovery plan, which is expected to run until the end of 2026. We'll keep you updated as we progress in the coming quarters. But rest assured, the team is fully engaged and also committed and fully aware of the plan across the world. So we are driving and operating that with a discipline across our operations. When you look to the right, especially in the middle one where we have a gigawatt on our active service contracts stating 157 gigawatts, it could deviate in the coming quarters when commercial reset takes place. And we are also expanding on our customer conversations on the external. So be aware of that. And then on the average contract duration, still a bit more than 11 years. And that also gives our strong contract portfolio we're executing on. With that, I'll go to development. And it's the Q1 2025 coming out of a quite busy year end in 2024. So I don't have a lot of saying to the development. They haven't had many order intake, as you can see it says. zero megawatt for the quarter. So I would just say in Q125, Vestas' pipeline of development projects amounted to 27 gigawatt with Australia, US, Spain, and Brazil holding the largest opportunities in general. The strategic focus is on maturing and growing a quality project pipeline as well as conversion of mature projects into project sales and related turbine orders. During Q1, focus was on continued development of existing projects. The quarter did not release and realize any project sales nor any related order intake. So we, of course, have better expectations on the coming three quarters to our colleagues in development. When we then look at sustainability status after Q1 2025, The turbines produced and shipped in the last 12 months are expected to avoid approximately 490 million tons of greenhouse gas emission over the course of their lifetime. This is an increase of 97 million tons. The improvement is primarily driven by the increased production we realized throughout Q1. You can see that on the graph to the right. The carbon emission from our own operation decreased by 1% compared to last year. That also demonstrates our relative performance still improving across our Scope 1 and 2, but it also highlights that if we have a lower activity on construction on offshore, then, of course, some part of this will be influenced by it. So I'm just saying here we could foresee that that will increase in some of the coming quarters while our construction activities increases at sea. Then lastly, number of recordable injuries per million working hours was up from 2.9 to 3.2 year on year. Safety remains a top priority for us as we tirelessly work to improve our safety performance across our value chain. Currently, we are onboarding many new colleagues across our operations in both the factories and in the service, so ever more important to have every member of the Vestas family arriving safely, working safely and returning safely to their families after carrying out the work at Vestas. So this is something that we will keep focusing, practicing and training with our colleagues in the field. Now, with that, I'll give it over to Rasmus, please.

Thank you very much, Henrik. And let's start with the income statement, where, as you already mentioned, Henrik, revenue increased by almost 30% year on year, driven by the higher delivery volumes, as well as higher prices on turbine deliveries, and then a slight growth in the service segments. Gross profit increased by 47% to 359 million euros, which corresponds to a gross margin increase of 1.3 percentage points year on year. And the EBIT margin before special items then came in at 0.4% in what is, of course, traditionally a little bit of a slow first quarter, but that is still an improvement of almost 3 percentage points year on year. On the table to the right here, it's also worth noting the improvement on return on capital employed, which continues to develop nicely, and we'll come back to that a little bit later. Looking at the power solution segment, revenue increased 43% year-on-year, again, driven primarily by higher delivery volumes in Americas and APAC, as well as by higher average pricing. And although EBIT margin was negative, it's still up by more than seven percentage points year-on-year. a good development. And all in all, I mean, we continue to see profitability improve in this segment, despite the cost related to the manufacturing ramp in both offshore and onshore in the US that continues to weigh on the segment margins. On the service segments, we generated an EBIT of €166 million in the quarter, which is corresponding to an EBIT margin of 18%, and on 2% higher revenue year-on-year, so fairly flattish from that perspective. We are, as Henrik also mentioned, continuing to execute on the service recovery plan that we laid out in connection with the full-year results, but it will take some time before benefits are visible in our financials. On the net working capital, we see an increase in Q1, driven by an increase in inventory levels, which was then partially offset by increasing payables and decreasing receivables. Working capital also, I would say, reflects the typical seasonality of our business as we build inventory for higher activity in the second half of the year, although we do note that it remains at a pretty healthy level from our perspective. And then going into the cash flow statement, operating cash flow was positive 28 million euros in the quarter, which is a major improvement compared to last year. And the improvement was driven by the higher profitability, as well as the better networking capital development that we just saw on the previous slide. And that then takes us to an adjusted free cash flow in the quarter of negative 325 million. And again, this is a significant improvement of almost 700 million compared to Q1 last year. And this despite a higher investment level of around 100 million euro more. And we'll get back to the investments in just a minute. Overall, that means we're ending the quarter with a net cash position of 366 million, which is very good to see.

Really well done.

Appreciate that. Looking at the total investments, they amounted to €307 million in Q1. And of course, this reflects the fact that we are continuing to invest into our V236 offshore manufacturing footprint, particularly in Denmark and Poland. The Nacelle facility in Poland is almost ready to start operating. And the blade factory in Denmark is adding both people and tools to ramp up production. And as you might have seen in April, the first commercial V236 15 megawatt offshore turbine was successfully installed at Hedraigt, which is of course a major milestone for both the projects and for Vestas on our offshore ramp-up journey. Going to provisions and the loss production factor, we do see an increase of the loss production factor in Q1, as you can see on the graph here to the right. But this is caused by a few sites, including the previously mentioned offshore sites that are undergoing repair as we speak. And if we disregard these sites, the underlying LPF is continuing to trend downwards. Warranty costs in the Q amounted to 118 million euros. This corresponds to 3.4% of revenue, which is an improvement on the full year percentage of 4.3% from last year and is also an improvement on Q1 of last year. And then going to the capital structure, we note here just a note that the share buyback of 100 million euros has been completed and the dividend of DKK 0.55 per share has been paid out in April. The financial results are the main driver for the development in the net debt tributar. that you can see here on the graphic to the right, which ended the quarter at minus 0.2, which of course is a big improvement compared to the 1.1 a year ago and remains comfortably below our internal targets. We are also maintaining our investment grade rating of BAA2 from Moody's with a stable outlook. Earnings per share on a 12-month basis improved to €0.6, again driven by the better profitability. And the return on capital employed mentioned earlier is continuing then to improve also on a 12-month rolling basis to almost 9%, which is in line with the earnings recovery that we have spoken to. And with that, I will pass the baton back to Henrik for the outlook.

Thank you so much, Rasmus. And for the outlook for the year, we keep revenue 18 to 20 billion euro and the EBIT margin before special items 4 to 7 percent. And services expected to generate EBIT before special items of around 700 million. And then the total investments sits with a guidance of approximately 1.2 billion. It's kept, it's unchanged, even with, as we can say, a relatively high number of variables coming and both coming and going throughout Q1 especially. May I also just take this opportunity especially here, Rasmus, to say thank you to you. You are doing a very good job, but also here we plan for you and Jacob to be part of the roadshow at DH1 in August, so everyone can get an opportunity to meet you also together with Jacob and see the handover is taking place between the two of you. So with that, thank you for listening in and I will hereby pass back to the operator for the Q&A.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question is from Christian Torno, CSEB. Please go ahead, sir.

Yes, thank you. I have three questions. I'll just do them one by one. So first one goes through the impact from tariffs and especially the section in your outlook section, where if I interpret correctly, you are saying the tariff creates challenges in execution and hence adds cost, but you expect to be compensated for this. So what level of compensation are you expecting? Is it 100%, 90%, 80%? And if it's not 100%, can you sort of give examples of the type of costs related to tariffs which you cannot be compensated for?

First of all, thank you, Christian, and you will probably almost expect me to say that. As it is in relation to a relatively limited number both of projects and customers, particularly in the U.S., it belongs to a bilateral conversation with the customers there. And obviously, Both customers projects are not the same and therefore we work diligently through this. It takes some time and therefore we also have to see because as you are rightly saying tariffs, but a tariff is a category where even the amount throughout the first month of the year have deviated and variated quite a lot. So I can't even sort of say to you this is exactly the science of the number of tariff. So even that is variable. So important is that end of it and end of the discussion, it comes through to customer and therefore it also comes through to our customers to output, which is the electricity and therefore tariffs will mean higher electricity prices in the US.

Fair enough. And then sort of similar question, but more to your order pipeline. So how is this impacting the discussion on future projects? Are you expecting a lower order intake in the U.S. for the year, or is the fact that your customers can also pass this on going to keep your assumptions unchanged on orders?

I think there's some of these things that have reached a level of both size of percentages and tariff that, of course, will have to have a qualified discussion also in the output to an off-taker of electricity in the U.S. That doesn't take away with Christian that we have more than 5,000 people. We have factories in the US. So for anyone, we are probably the ones best suited to mitigate these things. But if we look at the order intake right now, there are many of those things that are in reality ready to be pushed the bottom on. But I just want to have policy clearance and policy clarity. And secondly, of course, they want to have some sort of also clarity of what could be the tariff outlook. So I have a commercial team that has been really, really, really... And I'm happy that we have a long backlog for 25 and 26. So what comes now is end of 26 into 27, 28 and 29. And of course, that requires that we also know what are the policy and will the existing policy continue potentially with a different sunset clause too.

Okay, so if I understood you correctly, a bit of delay in decision-making right now. What do you think?

Yeah, I think if I was sitting at the customer's shoes, I would also like to know what I was signing on to in an investment committee. So what I'm dancing a bit around in my answer here is I can't say to you if it's in Q2 or Q3, there'll be a policy clearance, Christian. But we are closer to the policy clearance because US administration normally works with these policy clearance under a normal assessment, both in the Congress and the Senate.

Understood, and fair enough. My last question is on the Empire Wind order you have in the backlog. Obviously, I'm not expecting you to know what the future of that exactly is going to be, but can you just talk us through the scenario where, I mean, the project is not being executed as planned and what it will have of financial impact to you?

First of all, I would say an empire is unprecedented. It's unprecedented in most parts of the world that you have an infrastructure project, you choose to put a stop work order to in actually under normal known conditions. It is a project with a partner, Equinor, and that also means it's, as you would assume, I'm probably speaking a bit more regular with Anders Opdal these days than I would have done in the past couple of months. But that's just part of it. It is an 810 megawatt order. in the state of New York. I saw some states yesterday putting a thing towards it. We follow Equinor. It's our partner. And therefore, we also follow what Equinor would do. And of course, in a normal contractual relationship like this, there are certain clauses that also govern for examples like this. And of course, we await that until we also know what Equinor does. want to do. I will just say from a positive side, we didn't build factories because offshore in the US was not giving the transparency on the project pipeline. So for us, this would mean that we have an 810 megawatt dropout if it's cancelled of our offshore backlog. And at that point in time, of course, we will try to see if we reallocate that to somebody else in Europe.

Understood. That was all for me. Thank you so much.

Thank you.

The next question from Akash Gupta, JP Morgan. Please go ahead.

Yes. Hi. Good morning, everybody. I have a couple of questions as well, and I'll ask one at a time. The first one is a follow-up on tariffs. So I think what I want to understand is the gross impact versus net impact given your ability to mitigate also by passing it on to customers. But I think at this stage, we are looking into what would be the potential impact on your cost base. And on that front, when we look at 2025, I mean, most of the activity that you will do in current year, production will be done largely by first half, and then more will be installation activity. And given we have got some pause on some of the reciprocal tariffs for 90 days, what I want to understand is that when we look at the impact, is it fair to say that you would see a higher gross impact in 2026 than 2025? So that's the first one to start with.

I wish you will actually put that question to the administration that have suggested the tariffs, Akash, because in that sense, we can run those. I, of course, know exactly from components, country of origin, what we sit with as tariffs. But you will also know me well enough in saying that has been a pretty changeable number throughout the first four months of this year. And of course, now we live on the pause of that regime. So therefore, you're absolutely right. If the pause stops and all the percentages are being reintroduced, then your tariff implication for that for 26 is higher than 25. That's just a factual statement. But giving both the circumstances off that the number of projects that are being hit by this potentially, I will still keep it just like Empire. It has to be a conversation between us and the customer. on the amount and we are doing whatever we can to mitigate that. But you will not in single countries in the world have a fully localized supply chain when we talk about a wind turbine.

Thank you. And my second one is on your manufacturing ramp up. So first of all, thank you for providing some details in the presentation. But the question is more on what is left. So maybe if you can elaborate on what is still left in manufacturing ramp up and maybe timing of that by when these ramp up should be out of the way. Thank you.

I think ramp up is a definition is targeted to get to a certain tag time. And as long as you're not at that tag time, you're still talking about extraordinary ramp up cost. So we knew when we walked into this year that they should diminish over the year. And that's what we are working diligently on. So it also means that we have had and a material impact negatively on the ramp-up cost in Q1. And of course, we try whatever we can to dilute them over the year. So that's the plan. For obvious reason, I don't have an interest in sharing exactly on what part of the ramp and where are we on the tag time right now. But we are not finished with the ramp up. So we are bringing the challenge with us into Q2. But I also have here again to probably say thank you to our colleagues. They're working through it diligently. And as you would appreciate from a sort of a patient point of view, it doesn't help to stand and jump up and down and ask for more quickly because that's not the way to solve it. It is simply just by learning, putting it through more and more on the onshore in the U.S. and then, of course, on the offshore in Europe predominantly. So we're working through it. It's not gone and it will sit there for most of this year, I'm pretty sure.

Thank you, Henrik.

The next question from Kasper Blom, Danske Bank. Please go ahead.

Thank you very much. I would like to start by asking a question regarding the service recovery plan. Of course, we're now only one quarter into it, but you mentioned that you would want to keep us updated as it progresses towards the end of 2026. Can you elaborate a bit on how you would want to keep us updated? Will you be introducing any new KPIs or is it merely for us to follow the margin development. If you can reflect a bit on that, Henrik, that would be great.

Yeah, I think we gave with this in beginning of February, we gave what are the details of the plan. I think today you saw the performance of Q1, which is there and there about of the performance we expected. in that it's an average again, an 18%. And of course, there are some disappointments and there are some positives in there. But as we are just saying, that will continue from a margin point of view. So what we are just saying here in that sense is that we we just walk through that and we share it with you in in if there are any positives and negatives to the margin and then as i said here the takeaway from this one is that you you want to have been through it in a proper way before you also engage with your customers on the on the model we're executing on and that's why i just sort of also said today that when you look at for instance the gigawatt on the service there might come variations to that theme when now the commercial reset starts. So we're not bound to renew things that doesn't create any value for the owners, the shareholders of Vestas. And of course, that is now where we see in the coming quarters that external discussions with customers are increasing.

Fair enough, Henrik. Then apologies, but just yet another follow up on the tariff discussion. Could you talk a little bit to sort of the difference between what you already have in the backlog and when it comes to new orders? Speaking to both you guys previously and also to some of the other Western OEMs, one phrase I've heard a lot is change of law clauses. Could you sort of confirm that in the existing backlog that you have these change of law clauses and that tariffs is thereby mostly something that financially could affect new orders?

You are asking about backlog and new orders. That's two different things. So as I said here, I think the world was prepared to some extent on there could be a discussion around tariff and how you would organize that in terms of clauses and contracts. I think what has been developing over the last months is, of course, a tariff regime that was maybe a little bit more excessive than people could have foreseen when you did the written one. So there is clearly a discussion point around how do you govern for that. And I think also, to some extent, some of those tariffs that have been proposed are at a level where it probably could prevent some of the projects to be built ultimately. We are the one that are best suited for having the conversation because we have the setup in the U.S. already. So for us, it's a good discussion to have with customers. But as I said, also, as you can see, 189 megawatt, it has an effect until we have some sort of clearance on how we go around both the policy and the tariff. And if I'm looking at it, policy right now is more important for customers to get clearance on than actually tariffs.

Okay, that's a good reflection. Then just the final one, Henrik, I understand you don't want to sort of give exact data on your attack times, but in the U.S. onshore ramp-up, could you speak to maybe how far along the way are you? If you have to sort of improve by X percent, then how much is covered and how much is left before you are where you want to be?

We are still not on it. And as I said here, that goes for both the onshore in the US and on the offshore that we are managing through it. We are also getting extra capacity on finishing and so far. So to some extent, it's positive because it starts coming out. But that also means that when the volume ramping up, then some of the finishing conclusion on it gives you other points. So we're not happy where we are. We think we should have been further on. But here I'm talking as much to the internal colleagues by saying that because they know we still have a way to go and we probably would have hoped we were longer into it but but that's how life is and and as i said the good thing is it's the market we we love we know the factory so therefore we will get to it in the in the right timing but i think there is a couple of quarters yet to go before we are we are where we want to be okay that's good enough thanks a lot henry the next question is from john kim deutsche bank please go ahead

Hi, good morning. I'm wondering if we could talk a little bit about the contract assets, the sequential growth from Q4 levels. Can you help us unpack that a bit in relation to how inflation is working in the service contracts? You did mention earlier, I believe, that there's a commercial review in the backlog. My take is that you're setting new terms and you may lose some of those contracts. Is that the right way to think about it?

Yeah, let me take that one, John. So first on the contract assets, I mean, you're right, it grows a bit sequentially from Q1. We don't see any underlying development in the contract assets that is really worth calling out. Of course, we'll disclose as well the segment split on a full year basis. And I think we've made the point, of course, on service to focus right now is on reducing costs and resetting contracts as we go. And of course, we also note that if you look at it on a net contract balances perspective, we are actually decreasing, which of course is also helping us in our working capital. I think the second question was on the contract trimming. I think it's more to say that it is, of course, on the table, that we were also focusing on value over volume from a service perspective. And that, of course, also means that if we need to try and renegotiate or exit contracts, you know, we are open to that because it's about the health of the service business and not just growing the gigawatt under service every single quarter, as Henrik is alluding to. So I think it's just a heads up that this might be that you can see that in the numbers at some point.

Okay, very helpful. One follow-on, if I may. In the provision in LPF slide, you do talk about underlying LPF continuing to trend down. Can you give us some color on what's happening in the repair backlog for the onshore installations and how the cadence might work this year? Thanks.

I think that's continuing from what you have seen in the last couple of years. We want to bring it down, but it's sticky, so it doesn't sort of change over. And then, of course, as you've also seen in in this quarter. If there are a few parks standing, then it's enough to influence that number. So we continue the underlying focus and trend, John, across what we have. And of course, when you talk of gigawatt of this nature, the onshore works and it progresses. And we haven't seen any new major failures or components in the last quarter.

Okay, thank you.

The next question from Dan Togo Jensen, Carnegie Investment. Please go ahead.

Yes, thank you. I just wanted to get back to this ramp and how we should sort of think about the effect here sequentially. I understand, of course, there is an impact here in Q1, but when we go forward in the year, of course, you should improve, but also the impact and you start to deliver more on the offshore side that... comes with a lower margin. So how should we think of this going forward? Is the impact, so to say, on par in Q2 with Q1, so there's no sequentially worsening? And how fast should we think of, so to say, sequentially that the positive impact of you getting better tech times, et cetera, will penetrate throughout the coming quarters, just to get a flavor on feeling of that? Thanks.

I could be a bit tempted, Dan. For me, the good thing is I don't need to guide exactly on specific quarters and how those costs materialize. They should dilute over time. And to some extent for us, of course, it's nice that it's here in the beginning of the year. But on the other hand, we also know we are ramping up manufacturing on both the onshore and the offshore. So therefore, it will be nice if it improves in the coming quarter or two. That's for sure. So we work diligently through it, but as I said, I don't want to end up in having neither an amount or an exact science between the individual quarters because you are sensitive as it is that number of factories we are talking about.

Okay, understood. And then just maybe some words on the ASP increasing sequentially, of course, I guess also because you take more offshore here. But just to get an understanding, is there, you know, the spread between onshore and offshore? Is it particularly wide as it is right now or? due to the scope that we see also offshore and also ASP-wise closer to each other compared to what we've seen in the past, just to get a feeling of the mix between the two. No particular numbers named, but just sort of a relative understanding.

I will almost say here, if we were fishing together, I will say you are clearly trying to get as close as you can to catch that fish. Come on, offshore is in this quarter, it's two orders, right? So we don't comment on it, Dan. That was the reason why we also say we don't separate out. Because if you're able to do that, then you can sit and look at each other's pricing in local markets, which we are not really. And I see there is another one in the industry that has stopped providing ASP for probably same reasons. So we are very happy with the order intake. We are happy with the pricing and we are continuing. And when you see the numbers on the underlying, you can see it pays off. So it starts with the order intake and you get the right pricing for it. Here, I will say in terms of the order intake in the quarter, there is a high variations of scope, not only from on and offshore, but also within the onshore. So therefore, there is just a variation, but we are very pleased with it. And no, I don't foresee that we will have things where onshore and offshore are the same, unless, of course, you have loaded scope in some of the onshore orders. That will be the best way of saying it. Understood, Henry. Thank you.

The next question from Martin Wilkie, Citi. Please go ahead.

Yeah, thank you. Good morning. It's Martin from Citi. My first question was just coming back to tariffs. And if you could remind us of your country exposure. I think the industry overall is a lot less China exposed than it was in 2018. And so therefore, presumably the tariff impact is mainly for countries like outside of China, but any comments you could give on that would be very helpful. Thank you.

I think at least one thing, thanks, Martin, is that I don't want to add to the geopolitical discussions around good and friendly countries or not. We have a global supply chain, so there will be a number of components that will arrive from some of the places you are mentioning, whether that's China or other places around the world where we have established the footprint and also the supply chain. I will say compared to previously back, if you're comparing to 18 and 19, there was no doubt that at the point in time in 18, 19, you also had around the corner a cliff on the PTC, which led to that there were almost full turbines being imported from across the world internally. into the U.S. And I think today that's just a different capacity planning, and that's also the localization that we have done in the meantime. So therefore, most of that, super happy that we have the setup in the U.S. for the capacity, and you can see that we now passed 5,000 employees, where by far the largest growth of that comes from the factories in the U.S. for the capacity expansion.

Thanks. That's really helpful. And linked to that, so obviously you have been expanding in Colorado, which will mitigate the tariff risk. Is that ongoing expansion happening regardless of the Inflation Reduction Act uncertainty? And obviously we may find out over the course of the summer whether many of these credits continue or not. But from your perspective, adding that capacity in Colorado can happen regardless. You don't need to wait until we get clarity on the IRA before you can do anything else in Colorado.

Contrary to a few other people that I can see in some of the last quarters here have almost put wind in the U.S. in the grave, I'm opposite. There will be a solution to continuing policies in the U.S. because the energy generation sits strongly as part of this program. But let us do together with the rest of the industry the normal thing. good work to find the policy framework for it. I'm a firm believer in the policy framework will find its balance in some of the other discussions that are going on in and around both energy and tax and other things in the U.S. currently. So we are positive over the ramp in Colorado. and we don't see anything. But would we start building another factory in today's environment? Probably not currently, but that's up then to administration to have those discussion for giving clarity to the new policy. So, Martin, we are still positive over U.S. market and also what our customers are saying about it.

Great. Thank you very much.

The next question from Max Yates, Morgan Stanley. Please go ahead. Mr. Yates, your line is open.

Can you hear me?

We can hear you now.

Yeah, OK. Look, I understand. I understand tariff is a bit of a moving target, but what I wanted to ask was on your supply chain, if you look at kind of how you operate today and in terms of sort of bought-in components into the U.S., what is sort of most different to the way that you operated in 2018 and 19? And I'd love kind of any examples of where you've kind of moved sourcing of certain products out of China into other regions of the world just to understand sort of some of those changes. Thank you.

Thanks, Max. But I think one of the biggest changes that have been since 1819 was that you literally had a full open. So in reality, you shipped almost full turbines from other parts of the world, whether that was Europe, China and India. And if you followed us on the recent years, you also saw, for instance, that when you have some of these restrictions, you had an American company. manufacturing credit as well. And of course, that led to that we took capacity out of, for instance, ANSL manufacturing in Denmark and of course, expanded back in the US. So therefore, quite a lot of that has been rebalancing over the last years. And there has been an incentive. for people to doing exactly that. So we did that. We followed that lead both from first time the current administration was in and the Biden administration. And we strongly believe that that will be some of the things that will be an ongoing direction also in this administration.

Okay, that's helpful. And just as a follow-up, obviously your warranty cost provisions were quite a lot lower this quarter, I think down sort of 3.4%, which is obviously a nice move. Was there anything kind of one-off in there, any kind of positive provision releases or anything like that? Or should we take kind of at least a kind of material improvement versus last year as the base expectation for what we should see in 2025? Thank you.

Thank you so much. And I mean, Max, for those who followed us in a number of years, this is a long journey. It's a sticky one. It was never going to change from about five to suddenly end at two or two and a half. So we are on the journey and this quarter we are business as planned. So to say there's no material in the quarter that sticks out as extraordinary. So therefore, we had 3.4%. And so that's more a business like usual. I always say it's difficult unless you have some material going on in a quarter. Otherwise, this is a good average quarter for where we see it. And of course, that's lower than it was on average last year. But you also saw that that also had a comparison to Q4. So we do that both within the quarters, but also with an eye to what is the full year expectation.

Okay, that's great. Thank you very much.

The next question from Klaus Almer, Nordea. Please go ahead.

Thank you. Yeah, also a few questions from my side. So Henrik, there's no doubt that it must be very difficult to navigate in the current tariffs uncertainty. So how do we actually operate with the risk of tariffs being imposed while the components order, for instance, in China is on its way to the U.S., but not yet reach the harbor of the U.S.? That would be the first one.

Klaus, you know us well. First of all, we don't move factories or we don't move things by coincidence between a Monday and a Friday. And for those who have done that, have gotten a very bad first four months of the year. because that's not the way to treat it. We built this and we built it with a certain belief. Then sometimes we get surprised or get maybe disappointed, but then we find a solution to that in general. But of course, you try to root and source things where you are mitigating the least. But if I'm then a little brutal here, if you've seen some of the potentialities coming and going, I mean, come on, it wouldn't be fair to a supply chain of partners or even our own sourcing of factories that you basically change that much within a few weeks. So we try to steer and keep voices and reactions and discussions pretty calm. And so far in the first four months of the year, that has actually supported us. Because some of these things, I'm pretty sure, will find a mitigation or a handshake over the coming quarters at a level where the world settles in and continue having a growth in the societies we represent. So that's maybe the best way I can sort of say calmly. And we don't... We don't go to bed and we don't get up in the morning and the first thing we do is if it has changed because we run investors with a longer view than what happens spontaneously on a single tariff percentage in a country.

Makes sense. Maybe to ask in a different way, have you increased your inventories ahead of potential tariffs being introduced? That would be one way to mitigate at least.

I think we are... I mean, if there is a pause, we try to get some of the components through other things. But then on the other hand, our assets and our components are not something that you sort of just do in triple speed and therefore get them in by exempt. So the supply chain runs with the supply chain is... So therefore, Klaus, we do whatever we can to mitigate, but there isn't sort of a quick loop where you just bring blades or, for that matter, nacelles or other hops just across because there is a window of 14 days. That's not doable, Klaus.

Fair enough. Then the second question goes to the pipeline, and I know, Henrik, you're not that keen to give a lot of color to this, but if we talk pipeline excluding the U.S., does the current geopolitical situation impact the discussions with the developers? Are they also hesitant to place orders, or is it very specific to the U.S. when you talk about delays in negotiations?

I think we are all as executives, we are all as reflecting over the world we sit in. And it is clear that if we have executive discussions right now in one part of the world where we are probably meeting potentially unprecedented decisions or discussions, then of course that will have a reflection on what do we then do. And this is end of the day. It is about how do we allocate capital in our customers and together with our customers towards it. I think the positive is, and people forget that, we have had an election in Germany. Germany has just completed the auction. It's still with a target of potentially 10 gigawatt onshore. I wouldn't even been able to predict that just two years ago. So I also think here and if there is an election in Australia that has just been done and therefore probably the energy policy now is pretty stable and therefore the transition from coal to renewable and other energy sources will happen with the same speed or even accelerated speed. So I think the world is in an energy focus still. And of course, customers will benefit from that. So I think I'm not doing that. But of course, where you have policies like in the US, there you have to be cautious for a period of time because you can't go to your board and say, I don't really know the return on this one subject to what will the policy be in the US. So that I understand fully. But as we know, the customers there, you complete all the things up until basically you... Yeah, missed to date it and missed to make the final decision because the projects are there in the pipeline. So I still see some of exactly the same, but I think, of course, it's a big utility or it's a big developer game right now because that's where you have availability of pipeline.

Fair enough. Then just the final question. You mentioned during your presentation within service there was some commercial discussion ongoing which may create some volatility, at least that's what I heard. What does that mean?

That just means, Klaus, when also Rasmus, I alluded to here a bit earlier, when you look at it, there's no automatic renewal in the service business that probably could have been assumed previously. And of course, if there are contracts in the service portfolio that doesn't look to create any value for us, then there will be a discussion directly with the customer. And that will ultimately lead to that we find a solution. And we are just sort of heads up here and saying, You can't just, as usually in the service business as part of these eight quarters, just say that the gigawatt will continue to go up. We know it goes up because we, of course, install more turbines. But on the other hand, there will both be renewables and there will be some commercial resetting that ultimately would lead to that some of that volume either stops, goes somewhere else, or customer takes it in-house.

Okay, so either you lose volumes due to termination of contracts or you get better margins if you are successful in these negotiations.

You are trying to make it very two-dimensional. I think that's maybe a little too simplified, Klaus, but the aim is very clear. So we don't do the commercial reset here to put the service business in a worse position than I can promise you.

Fair enough. That was all for me. Thanks a lot.

The next question from Ajay Patel, Goldman Sachs. Please go ahead.

Good morning, and thanks for taking my questions, and thank you for the presentation. Firstly, I wanted to ask on free cash flow. There was a sizable improvement in the first quarter, $680 million. And I start to think about last year, where you had, I think, minus 970, and then you delivered a billion in cash flow by the year end. So a sizable amount of cash flow generation in Q2, Q3, Q4. Now, if we look to the next three quarters, your revenue should be stronger, your margin should be stronger. Is there some maybe balances between the quarters that in this quarter that maybe undermine that relationship if I compare with last year or Is the consensus for $445 million of free cash flow for year 25 just look too low? Anything that gives me a feeling of the building blocks would be really helpful.

Yeah, let me take that one, AJ. I think we're, of course, quite satisfied with the cash flow in Q1. As you know, we usually have bigger negative cash flow in Q1 as we start to build inventory and usually have a bit of a softer Q1. I think we have worked quite a lot with our working capital. of course on the p l we usually say we have we're back and loaded and we are we are seasonal and i think on cash flow that has maybe been even more so so that has been a big focus area for us to to try and improve and that is basically what we're doing you cannot necessarily take the same trends of last year and then extrapolate that we still expect cash to be back and loaded but we cannot say necessarily to the same extent as last year. For us, it's just good to have a nice Q1 in the box from a cash flow perspective. And of course, it remains our aim to have a positive free cash flow for the year.

And what would be the areas that would cause the differences? Just so that I understand. What would need to happen this year that wouldn't replete last year in terms of... Because I think your order profile... In terms of your delivery profile, similar, right? Revenue.

Yeah, but within that delivery profile, we're always looking to improve, right? So milestone payments, when is the exact trigger? When are we collecting big payments? Cash can also be very lumpy. Same with our outflow, try to be more even, more disciplined, et cetera. So we are working on all these, let's call them smaller improvements, and then that is what you are seeing coming through in Q1.

Okay. And then can I just ask one other question just on orders? Sure. And just thinking about the year as a whole, would you still expect to see order growth in onshore? We start the year sizably down, Q1 versus Q1 last year. There were some positive encouraging comments, I think, over the call. There's a lot of activity happening. Maybe some uncertainty is causing a little bit of sitting on hands. But is it still expected that you'll see growth in onshore this year versus last year? And which are the key geographies?

You see here, this is where we simply can't. And I tell you what, the previous nice person here, Klaus Alma, he always reminds me every time I try to come with a prediction of next quarter or where I travel, then Klaus acutely remind me of that that didn't translate into any orders or something like that. So I think the ability to convert and give you a guidance of where we are, I give you a strong hint here. We see Europe as an area where all countries are all hands on deck. Why is that? You just had it last week where if you have outages and other stuff you are acutely reminded of, You need to be in control over your energy sourcing and independence. You've just seen the election this weekend in Australia that is more of the same and probably with an accelerated speed. And then, of course, you have the whole of North America. uh probably being in in weight and hold so um as said we don't see a slow down in in order intake and we don't we don't plan for that and i have none of my commercial teams that are talking to that either so so therefore aj i i don't see you see that but but i i'm i'm fully aware As I also reminded Klaus, there are people that are still trying to almost have an agenda point that wind is going backwards, but that's not what we see in our parts of the world where we operate.

Okay. Thank you very much. Very clear.

The next question from Colin Moody, RBC Capital. Please go ahead.

Hi there. Thanks for taking my question. I just wanted to ask about, you know, you alluded to earlier the potential reallocation of capacity, you know, from Empire Wind. I just want to clarify, how feasible is this considering the kind of lead times your customers need on these offshore wind projects? And I guess, you know, I wanted to marry up, obviously, you said that, you know, you haven't got any U.S. factories because you saw people kind of writing on the wall for offshore wind. I just wanted to marry that up with your comments that you'd rather be early to any kind of offshore ramp versus being late. Any issues of pockets of excess capacity in the next year or two as a result of that? Thank you.

And now we think we are mixing all topics almost in offshore, Colin. I think what we have just said here, for when you follow the timing, the discussions that has happened in the U.S., the way offshore unfolded was it took a hype coming back to 2021 where people were guessing that U.S. will install in 2030 probably 8, 12, 14 gigawatt of offshore annually. I think when we came into 23, it became obvious that those plans were not going to be materialized or backed by proper permitting and others, which had also at that point in time made most of the localization sort of disappear. The discussion was still there with some states, but when the state didn't get at least a minimum of one or two gigawatt in order planned, executed into the backlog every year. You can't localize a supply chain because you don't localize a supply chain to have to go at idle every second year. So therefore, we have ended up in a situation, and you know the past here, that there was an outstanding on Atlantic shores and we had a firm order intake of Empire. So therefore, I feel for our partner right now, Equinor, that is having that project. Our job is that, of course, we can't deliver the turbines and then take them back because then they are fully designed and doing that. But if it is early enough that it doesn't get or there is a change of it, then, of course, we work together with Equinor to how to mitigate that and potentially use parts of it in other parts of the world. Don't forget, it's 810 megawatt. It doesn't stop neither Ekinor or Vestas in the planning. It's a bit more than 50 turbines. So we will manage through this as we manage through many other things. I understand the headline and I understand the non-precedent of it. But having said that, then it is also manageable for us in both parts of the world.

Sorry, I think that was a bit unclear. I completely acknowledge you haven't yet. You were ahead of the curve and you understood that there wasn't going to be a great deal of offshore localization in the US. But I guess perhaps put a different way, as I would have presumed, Empire Wind would have been supplied out primarily from European factories. You now potentially have an 800 megawatt hole in your European production capacity. How reasonable is it that you could actually reallocate your production to other projects, considering the kind of lead times needed for offshore projects? Perhaps is a better way of summarizing what I was asking.

But you have factories where you adjust factory capacity and the way we work with that constantly, Colin. So it's not like you are either full capacity or overcapacitated out in offshore. So that's part of the building block. What I'm just saying here, 810 megawatt capacity. is mitigatable out of a capacity planning, if it is. And that's just what I'm, as I said, trying to say. There is a lead time to produce it in Europe and there's a lead time for the component sourcing of it. And that's what we are planning through. Don't forget, in the offshore, you got more than 10 gigawatt in total. So in reality, we are adjusting with less than 10% of an offshore backlog.

Yeah, that makes complete sense. Thank you. And perhaps just one quick follow-up question in a different area. Obviously, your Q1 deliveries are relatively quite strong versus what the market was expecting. I appreciate it's not mega meaningful in terms of the full year picture. Is there anything to comment there about the kind of shape of the full year, still back and loaded? Do you have any greater comfort in your kind of deliveries in Q4 and your execution there at this point or a bit too early to say?

I think we've just come out. We've had a good first quarter, solid, probably even a bit better than what you on average expected. So therefore we are doing that. We kept our outlook for the year with a lot of the variables that goes on around us. So I think we are actually saying here with a thing, let's get on to the next three quarters and then we will see how far we get when we get especially into the half year and the third quarter. but it is back-end loaded. We always said that, and it is particularly as back-end loaded or even more than last year. So therefore, there's still a lot for us to do in the second half of the year. It always comes with a risk in that sense. So that's why we're still highlighting that, Colin. But we've had a better start of the year than probably we also forecasted and budgeted for.

Great. Thanks very much.

The next question from Deepa Venkateswaran. Benstein, please go ahead.

Thank you for taking my question. I wanted to confirm one thing. And you mentioned that the uncertainty around the IRA is higher than TALIS. So could you confirm that? And secondly, on the IRA, what are your customers expecting? Because right now the law is still that IRA is valid. So Why would shovel-ready projects not place orders? Is there a fear of retrospective changes? And then I think you mentioned something about sunset. So if you could maybe give us your best guess of where you see IRA progressing. Thank you.

I think there's always been a discussion when you have a change between administrations. And I think RRA came at a point in time where that was needed. And it includes quite a number of details, not only related to wind. So there is clearly a policy change in some parts of that. So therefore, until you have that, questions like when is the timing for it, is it 2032 or is it a different sunset clause that is ultimately leading to that there will be an earlier delivery or an earlier sunset clause, or is 2032 something that the industry will work with. That I think everyone that has an interest in wind are currently also putting resources to make sure. And the positive is both sides of both Congress and Senate are fully recognizing the importance of getting an energy supply where wind is part of the sourcing. So that's being addressed. And you know me well enough in saying I will not do what you asked me to do in saying what's the likelihood and what's customers because... This is very well-known territory for everyone that has built wind for two decades in the U.S., that when you have these negotiations and you have those things, we help put and work with it, and then we see the outcome through both Congress and Senate in probably the coming month, potentially coming quarter or two.

Thank you.

The next question from Sean McLaughlin, HSBC. Please go ahead.

Good morning. Thank you. I note the very EMEA heavy mix of your Q1 onshore order intake. And I also note the increasing volumes of China export orders in the second half. And just to understand a little bit where we are in terms of the Chinese competition, you've kept your prices very high, and you've always said that you're happy to lose share. But I mean, are you seeing increasingly markets where increased price competition is effectively pricing you out? Just an update on this would be helpful. Thank you.

I will sort of say here, when we look across where we have taken the orders strongly, Mia, and then when you see that, I assume it's not right to do big statements on a quarterly order intake because it depends on so many other things. So therefore... as I said here, you can have elections, you can have critical timings of grid permits and other stuff. So therefore, that will be wrong to assume that you can read an underlying out of that. I think in terms of construction, we don't have much construction and sales in China. there are parts of the world where they are competing. But it is also clear in what you also see now a number of times, the affordability and not least the security of the solution is also wading in of where we see competition and where we see less competition of that because it is underlying a priority for many markets that they want to have an independent and they also want to have their own way of doing it. So I will sort of say far too early to conclude that. And I know this is probably what some of you are heading or wants to run ahead with, but I don't think it's right. So therefore, the world is a bit more focused on whether we build. And if we take Ukraine, building things in a war zone to actually create the electricity. I think it is in its simple format showing the importance of what wind can do in even very severe conditions. And that I think people appreciate. and probably in Spain and Portugal, a lot of people also appreciate when you have a blackout, then you at first realize how important energy is to the society. So we are not shying away from that, but I think actually the world becomes a little bit more polarized in terms of also where we get our energy sources from. Thank you.

The next question from Henry Tarr, Berenberg. Please go ahead.

Hi there, and thanks for taking my questions. Two, which probably have been slightly touched on before, but one, just on deliveries in Q1, sort of backlog going into the quarter was not that dissimilar year on year, but deliveries are sort of 20% higher. Is it just scheduling? I don't think I've ever... sort of fully understood the seasonal reason why Q1 is so weak and Q4 is so strong from a delivery perspective. Is there anything else going on there? I guess that's kind of the first question. And then the second, there's a limited number of projects ongoing that are onshore in the US today, probably. But are those projects just carrying on as as usual and you're moving to completion and then there's going to be a discussion when everybody knows what the final sort of costs are? Or are those projects that you're kind of operating or have started today, are they on pause now whilst everybody kind of works out what's happening? How's that sort of happening? Thanks.

First things first in that sense. No, I don't think there is any, particularly there is, as you can see, the delivery schedule is in here. You can also see that if you take the first queue, this is a good delivery quarter on Europe. There is quite a lot more. It's almost doubled up. in North America and last year as we maybe all smiled a bit about that the U.S. couldn't have had a stressful time because they delivered 15 megawatt in a whole quarter last year in the U.S., but we also said that's an early warning of that we are ramping up to a completely different thing. So there we do 619. And generally in the U.S. right now, if you can get it and it's ready and we are ahead of it with construction and other things, Henry, we will take delivery in the U.S. because whatever it is, it is not something that from a project point of view, even with the tariffs we are having, it's not something that will ultimately kill a project as such. So I think that's just a conversation that goes on project by project. And generally, if people can have it and there is a grid connectivity ready, then you will move. And that's probably back to your seasonality. There is a lot of things that are always back in loaded also from a permitting and a grid connectivity. And you can't have... I wish I could. It would be much smarter from an industry point of view that we had more or less four equal quarters. But also, don't underestimate. When you are at the northern parts or the northern part of the globe's hemisphere, you have wintertime. And you cannot do construction and complete that in Q1 as much as you can prepare construction in end of Q1, Q2, Q3. and then you have all of it connected. So there is a natural underlying reason why Q1 normally is a slower quarter, simply due to the northern hemisphere, and that's what we will work diligently through. And then on the US onshore pipeline, we don't see some of that and there's nothing that stands still in that sense. But you will also appreciate, Henry, that some of these things are ongoing and some of them are variables that are being discussed. And you can sort of say if we should change the tone of voice or the conversation with a customer, depending on the variables we have seen in the first four months, then it will be a difficult call in the end. So I think everyone here, it's happening on senior executive level and therefore people will connect with this and find solutions to get this done. But again, there, a lot of it has been mitigated already before this started because we have a much smaller impact from components that are not fully turbines imported to the US as described earlier in this call.

That's great. Many thanks.

Could we have the last question now, operator?

Yes, the last question from William Mackey, Kepler Chevro. Please go ahead.

Yeah, good morning to you all. Thank you for squeezing me in. My question would relate to perhaps some of the core assumptions that you've made going into the end of the quarter around the reiteration of your outlook statement And I say that with, I guess, specific reference to tariffs. When we look at the volatility of tariffs in the first quarter, it's been extreme. We're on pause on a number of tariffs and not in other regions. So what is your core assumption when you've reiterated the guidance about the tariff outlook for the year and the sort of adaptions you're making? And how could that perhaps... be revised later in the year one way or the other, depending on various outcomes of US policy. Thanks.

But I can answer that shortly, William. If I had to give you an update on the size of the tariff in a gross setting throughout the first four months, we would have had to update you quite regularly. And it is not fair when it's about a number of projects and a limited number of customers that are engaged in it. So we really have to focus on this one because the other side of that coin What if it is mitigated or disappeared in one or two quarters? Then we will also sit and having a similar conversation. So what happens then with that customer or that project? So therefore, we have said here that will happen that mitigation ultimate leading also to the effect to the electricity offtake price for customers. So therefore, it works. But of course, I don't know what will be announced in five or six days from now. And that, of course, has an uncertainty. And you can also see that in the wording. It is not immaterial. but we also live in the uncertain world. But we so far feel confident enough that we can mitigate with the partners we have. And that's what we will aim to do. But it will be wrong, especially under those circumstances, to give either a fixed amount or a fixed date where things were mitigated on. So this has been our assumptions. And this has also been our discussions. And as you can probably guess, with quite a lot more time and details shared internally, investors.

Okay, thank you very much.

Okay, with that, thank you so much for not only listening in, but also taking the interest here and sharing with it. I know we are going to see many of you over the coming days. We look forward to that. And with that also, thank you again to everyone here. So speak soon and see you soon out there. Thank you.