Vestas Wind Systems A/S

Good morning and welcome to Vestas' Q2 investor presentation. And also here let me start by extending a huge thank you to our customers, other stakeholders, and not least colleagues around the globe. It has been a busy and also a quarter with a certain degree of uncertainty in policy, not least for our more than 5,000 dear colleagues in the U.S., It's also a warm welcome to Jacob, and you will have to bear a bit of patience until the financials before you listen to him. So welcome, Jacob. And with that, let's go to the key highlights of the quarter. So the quarter ended with a revenue of 3.7 billion euros. That's an increase 14% year-on-year. The EBIT margin ended at 1.5%. Improved onshore project performance. Lower warranty cost offset by the offshore ramp-up cost. We'll speak more about that. The order intake ended at 2 gigawatt. Lower order intake year on year as customers have been awaiting policy clarity, particularly in the U.S., and definitely we'll talk more about that. And then manufacturing ramp-up driving costs and investments. Onshore and offshore ramp-up is progressing, and the first V236 nacelle assembled at the facility in Poland. And then we ended with a return on capital employed of 11.5% last 12 months. Improved profitability in the last 12 months results in the highest return on rows since 2020, which, of course, is very pleasing. And last but not least, our 2025 outlook guidance maintained, and we'll take that in the end of this presentation. So with that, let's touch shortly on what are the markets and what markets are we in. The wind energy, and this is fact-based, is wind, and it's affordable, and there is a security element, and there's definitely also a sustainability element. If we look at our current business environment, inflation, raw materials, and transport costs are stable. However, tariff will, over time, increase costs, which we see as an imminent and also a link, but, of course, for us, a long lead time with the backlog. the ongoing geopolitical and trade volatility leading to regularization. And we, of course, say that. And we also notice that throughout what we have done in the previous years. When we get to the market environment, the heightened focus on energy security and affordability, you will also notice that in the most recent wording from the U.S., where we are talking detailed around how FEERC and components will be discussed and also seen going forward. The grid investment is prioritized in many of our key markets and it is becoming also a very important part of getting the solution successfully in the market. When we look at permitting, it is improving in some markets, but overall permitting, auctions, and market design are still challenging, and sometimes we still see even very successful government having an unsubscribed auction simply because we don't apply the same principles from neighboring countries. When we then look at the project level, I would say a really, really pleasing quarter We've seen a really good execution in the onshore across the markets where you have seen our deliveries. And we are positive towards the end of the year if we can continue the same discipline and also the same execution level of what we have seen in Q2. That also means we now go to the power solution. And power solution in Q2, I will say lower, maybe a bit disappointing order in Q2 compared to where we like to be, both compared to last year, but also where we would like to be from our own side. We see that with good activity in EMEA. So order intake ended at 2 gigawatts. It was down 44% compared to last year. The decline was mainly driven by a lack of orders in Americas, especially in the U.S., as customers have been awaiting policy clarity. There were no offshore orders in Q2, as noticed. The ASP declined to 1.11 million euro per megawatt in Q2 compared to 1.24 million per megawatt in the prior quarter. The decline was driven by a change in order mix and also while the underlying pricing remained stable and positive for investors. As you also noticed, we have had a very good start to Q3, and this is where disconnect the two quarters is wrong to do. See it in connection with the policy changes that happens over the quarter end. So we've seen several orders announced, including in the U.S., as the policy outlook is clearer. And that also means quarter to date in this quarter, we are already well past what we saw in Q2, including approximately 1.5 gigawatts so far in the U.S. The Nacelle facility in Poland has now started serial manufacturing, and the first 236 Nacelle left the factory in June. Actually, Jacob, we were there in June when that happened, and it's really nice to see that the ramp-up our team has been working on for now, saying years, is now coming to fruition. Of course, it also means that our offshore ramp-up cost in a Polish factory is around top of what we have seen because now we now have more than 500 employees working in the nacelle factory in Poland. It is an intense period for the offshore because we have turbines going out to EMBW and Baltic Power in Hedreit as well. So therefore, we see our 15 megawatt is now getting up on both sides, and we are in close, of course, dialogue and communication with our customers and partners on that. Ramp up at its peak, and we'll talk more about that, I'm sure, later in the call and also on the coming days. With that, I'd like to go to service. So again, solid quarter as recovery plan continues. When we look at the service order backlog, increased to 36 billion from 35 billion a year ago, but declined compared to Q1 due to the development in foreign currency translation. And that actually goes across for most of the businesses, and Jacob will give you some more details on that later on. Service reached 159 gigawatt on the service compared to 151 gigawatt a year ago. The commercial reset, which includes contract trimming and deselecting of contracts with unattractive term, is ongoing. Even so, Gigawatt under service during the quarter evidence that our solutions are valuable to both our customers, partners and investors. If we look at the other part, the standardized cost control, bringing down direct costs and reducing unscheduled maintenance continue to be among the top priorities to improve our service operations. And I really, really welcome the many, many, many of our colleagues that are involved in that and also improving on a daily basis. Thank you for that. When we look at Vestas, we are two quarters into the service recovery plan, as expected to run to the end of 2026. And I just want here, you can see the numbers, the breakdown of our 159 gigawatts to the right, and then also remind that we have an average years of contract duration of 11 years. With that, one also to remind you, it's a slide we shared with you in the beginning of the year, but just to highlight, when we look at the service recovery plan, we have just boxed in the two main headings over here, where most of the resources and also a lot of dedicated leadership time goes into. The commercial resetting where we drive the commercial excellence with focus on price, scope, billing profiles, and contract trimming. And we see a wage inflation that, at least in Europe, is settling fine around 2.5%. When we look at the standard cost control, that means it's hard day-to-day work for the regions, and that is being driven by them and creating the right ownership. I think we have to admit, lacked when we look throughout 2024, but that's a new reality from 2025. Quickly go to development. I will pass that relatively quickly. Not a lot news to say. Development is focus, focus, focus on the projects we are seeing. So in Q2, 25, our pipeline of development project was stable at 27 gigawatt with Australia, US, Spain, and Brazil holding the largest opportunities. Strategic focus is on maturing and growing a quality project pipeline, as well as conversion of mature projects in project sales and also related turbine order intake. In the quarter, Vestas Development firmed one project for 102 megawatt of order intake in one of our markets globally. You can see the breakdown here. Not a lot of change. Business as usual. But as you will also appreciate in the environment, a lot of focus on getting the full solution rightly done in the development and therefore shared and sold to our partners in good So with that, we go to sustainability. Vestas remains the most sustainable energy company in the world. We are proud of it, and we also keep our relentless focus in putting more energy up available, but also a focus on keeping the sustainability of it. The turbine produced and shipped in the last 12 months are expected to avoid 480 million tons of greenhouse gas emission over the course of their lifetime. This positive development of 65 million tons was driven by increased production over the last 12 months. Therefore, probably connecting to that, the carbon emission from our own operations increased by 8,000 tons year-on-year due to the increased activity, especially also in the offshore construction and service. The number of recordable injuries per million working hours, TRIR, was up from 2.8 to 3.0 year-on-year. Safety remains a top priority for us as we tirelessly work to improve our safety performance and records across our value chain. However, it's also clear that if you look at the number of full-time employees we have today, we also have to constantly, constantly put our effort to this when we are welcoming so many new colleagues, especially in our own factories, but also on the new sites where we are putting our solutions in play. With that pleasure, I'll hand over to Jacob and welcome him to our investor presentation here.

Thank you, Henrik. And it's great to be here. And we will start with the income statement. We see three key highlights for the quarter. Revenue increased 14% year-on-year, driven by higher delivery volume on turbines and higher revenue in service. Here it's worth to note that the service revenue in the comparison quarter was negatively affected by more than 300 million due to the planned cost adjustments last year. Our gross profit increased to $417 million in the quarter, primarily driven by the reasons mentioned above, as well as the increased profitability in onshore, which was offset by ramp-up costs in offshore. EBIT margin before special items was positive 1.5% in the second quarter. As previously communicated, 2025 will be a back-end loaded year, with most of our activity and earnings expected in Q3 and Q4, so basically similar to the last many years. Moving into the segments, first with power solutions. Revenue increased by 7% year-on-year, primarily driven by higher onshore delivery volumes in the US. And you can actually best see these details in the interim report on page 10, where you see that the US is up with 500 megawatt. EBIT margin before special item was minus 0.4%, down 1.1 percentage points year-on-year. The lower profit reflects ramp-up cost in offshore and higher depreciations and amortizations. This was partly offset by better profitability in the onshore segment, which continues to perform very well. For the service segment, excluding the planned cost adjustment made in Q2 last year, service revenue declined 4% year-on-year, mainly due to a 3% currency headwind. Our transactional sales were on par with last year. Service generated EBIT of 163 million, corresponding to an EBIT margin of 17.2%, in line with recent quarters. The service recovery plan continues, and Henrik has already spoken to this, and it will take some time before benefits are visible in the financials. Moving on to cash flow and first looking at the net working capital. Networking capital decreased in Q2 due to an increase in the level of customer down and milestone payments, partly offset by higher inventories, as we prepare for higher activity in the remainder of the year. Compared to Q2 last year, we have seen a considerable improvement in net working capital, and we continue to focus on improving this. Our cash flow statement comparing Q2 24 with Q25 showed a positive operating cash flow of 120 million in the quarter, a decline compared to last year. The decrease year-on-year was primarily driven by a favorable development in net working capital in Q2 24, partly offset by better profitability this year. Adjusted free cash flow in the quarter amounted to minus 220 million, a decline compared to Q2 last year, again driven by the reasons mentioned in above. Finally, we ended the quarter with a net debt position of 7 million euro after both paying out dividend and buying back shares. Our investments are in line with our plans and in line with previous months. Total investments amounted to $288 million in Q2. The investments are primarily related to tangible investments such as transport equipment and tools for our offshore ramp-up. The recent increase in LPF is caused by a few sites, including the previously mentioned offshore sites that have been undergoing repair. Disregarding these sides, the underlying LPF, lost production factor, continues to trend down. Warranty costs amounted to $115 million in the quarter, corresponding to a 3.1% of revenue, which is an improvement from 4.3% in Q2 last year. Orange seed provisions consumed were 188 million. The higher consumption level in this quarter is related to the above-mentioned repairs. And for me, ending on the capital structure slide, as seen from previously, we have a zero net debt. Our earnings per share measured on a 12-month rolling basis improved to 0.8 euro, driven by the better profitability. And finally, as Henrik started out by saying, Return on capital employed improved to 11.5% as the earnings recovery continues. And this is, as you mentioned, Henrik, the first time since 2020 that we are above 10%. And on this note, I pass over the mic to Henrik.

Thank you, Jacob. Thank you. First of all, it's always exciting to do your first presentation, not least sort of concluding on the first couple of months. I think as we are talking about Q2, I'll also take this opportunity to reach out a bit of a special thank you to Osmus because Of course, he has been holding very much that together with the rest of the organisation. So therefore, to many of you, you will also find both Rasmus and Jacob sort of being a bit of a pairing here over this quarter. So you get a proper way of saying cheerio to Rasmus. Rasmus continues as our CFO for the... global service business, which we are hugely excited about. So we look forward to that. So with that, I'll go to the outlook for the year. As we said, remain the same. So revenue, 18 to 20 billion euro. The EBIT margin before special items, 4 to 7%. Services expected to generate EBIT before special items of around 700 million. And then when we look at the total investments of approximately 1.2 billion. This outlook is also based on the current foreign exchange rate, and as you will clearly have both noticed and appreciated, that it is putting some pressure on a couple of the absolute numbers that are in here because, of course, with the dollar decline towards the euro, we see that effect from the U.S. and also a couple of our regions where currencies are tied to the dollar. With that, really thank you for listening in to us. And with that, I will go to the Q&A and pass back to the operator.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the 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 the loudspeaker mode while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star and one at this time. The first question comes from the line of Sean McLaughlin from HSBC. Please go ahead.

Good morning, and thank you very much for taking my questions. Just firstly on UFOs. Clearly, customers are not waiting for final clarity on how to qualify for construction-ready status. Maybe just a little bit more clarity on how significant the near-term order rally could be in the U.S. whether you see this, let's say, as a short-lived rally, or we could be looking at a one to two year period of very robust onshore U.S. demand. That's the first question. And the second question, I wanted to touch on the change of CTO. I think it's quite significant. You've I guess under the six years of Anders Nielsen, you've pushed for more standardization in onshore. You've developed the 15 megawatt offshore turbine. I mean, given the incoming CTO's background at ZF, it looks like maybe a deepening of focus on the gearbox. I mean, can you talk about the incoming CTO's priorities? Thank you.

Thanks, Johan. I think US first. If we look at the demand side there, it goes without saying, and I think we spoke to that as well, you don't like to put orders down in any market anywhere in the world if there's not policy clearance. Then you can sort of say if you have a project that is already well permitted, has an offtake and also have clearance on the other parts, then there is no need to wait for potentially what comes on an IRS guidance under sort of the safe harbor ruling. So that will have to wait until until next week. But that also now set us. So if you look back at the wording, I think it's fair saying it was vulnerable and maybe also a bit volatile wording that that was in happening during May, June. And of course, where we ended in in beginning of July, I have to say was pleasing to see. because that makes a structured program that also allows for build out of energy assets in the US when it comes to wind. It doesn't surprise you, contrary to a few others, that I'm a strong believer in wind and I see the positives of wind. So therefore, When you look at this, there will be significant activity coming towards that. And you can also see that if people are having an opportunity to do things, then they will not necessarily wait for the IRS update guidance. But I will say in here, Work is going on. People are generally quite pleased with it. And of course, for a number of customers, they have also secured some of the safe harbor, probably already pre-4th of July. So in the U.S., I don't see this as a couple of years. I see this as leading towards the end of this decade. So therefore, there will be substantial activity, and we know that from talking to the U.S. customers. And I know how little I have had successful in predicting some of this. But I try again, Klaus-Almo, you'll be listening in, and I will go to the U.S. and I will go to Australia. So we better see what happens in the next year then. When it comes to the CTO chains, anyone can see when you finish a press release with that probably Anders expected to retire from operating executive jobs six years ago. When I was out with him and Felix last night, it's fair saying. He thinks he's had six years, maybe the best of his working life. Lots of challenges, but also a fantastic footprint to leave behind. He will stay on here to get Felix rightly settled in. We have a number of things to get done here in the autumn and not least towards the year end. And Felix starts today, so therefore his first working day. So there's no gap. There's no running around and looking for excuse to stop and go. With Felix coming in, he's a veteran in the industry. He's a veteran also, probably knowing everything. Vestas in good and bad details, of course, on the Gearbox side. So for us, it's not like we are saying, oh, now it's Gearbox time because Gearbox has been and DriveTrim has been one of the things Felix was helping us with. So that's not personal related. That is actually ZF partnership related. from where Felix come from. Then Felix is not turned 50 yet. He has mileage to go. So it's also for me a real pleasure to see that we are able to attract global leadership executives into this leadership team. And I'm just looking here. At least I can see on my birthday that I have 10 years ahead of Felix. So it's good to have some of these in and If you look into Jacob, it's similar. So it's a normal, good succession. And I hope most of the people that knows Anders will be part of giving him a good send-off because he deserves that. So business as usual and not a second of pause. We continue the same of what we have done under Anders' leadership.

Thank you.

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

Hi, good morning. Thanks for the opportunity. I'd like to focus on where we should be thinking about order intake for rest of year. One could argue that 25 is a peak market for Germany. I'm wondering within the greater European remit, where else we should be looking for orders this year, next, and onshore? And then the same question for offshore, please.

Yeah, you know, John, it's super difficult to sit in August and give you these are the, but I will say the building blocks are not surprisingly. If you look at Europe right now, a lot of onshore attention is getting into Germany. What did Germany do to get to a position of where they are today? So Germany continues. We are one of the ones that works closely with partners in Germany to get it up. Very short lead time, very short permitting time, very short auction time. listen, a lot of EU 27 have been now drawn right to what are the learnings from Germany. And I wouldn't be surprised if we see policymakers in Europe aligning in and around some of the similar rules for EU. And so therefore, people are picking some of the positive learnings out of it. And one of the real underlying that everyone can understand is if you go from six, seven years permitting to a 12-month permitting, you get access to the latest technology on any project. That in itself is an enormous upside. Then we see the repowering in Europe. I'm pretty sure we'll have more legs. So Europe, yes. UK, you will see UK as well, and some of it will be how do we get the permitting done in the UK under the new regime, but there is tangible levers to what the government want in the UK, and not least at Miliband, so praise to that. US, yeah. wait and see. I mean, that's the only better way of saying it. And there will, of course, be if there are some changes to the safe harbor in terms of percentages, we might close in on where some of the safe harbor orders almost become small orders in that sense if the percentage to clear goes up. Outside that, Asia Pacific, you will see in Q2, 76 megawatts. They haven't had the busiest quarter of their time in Q2. So that's a good indication of they've been working on quite a lot of things that didn't come in Q2, which is back to my comment on please don't disconnect quarters or times it with four because that won't work. We are already now by this date way past Q2 order intake, and we are having quite some time to go in Q3. So no worries with that.

Okay, very helpful. Any color for offshore?

No. I will just say here offshore continues being it, but as you also would appreciate, a lot of the offshore is having a different cadence to the order intake because you work with the PSA first and then you go to the order intake. So I can't really say that because in a couple of the areas here on offshore, a lot of it depends on outcome, for instance, on AR7. Can that be, can that, some of that happen this year or next year? So therefore the offshore is generally, and we don't, I know this week is like everyone are trying to find and put a finger in a hole somewhere in offshore and that's wrong. If there is some project specific, you've got to get used to that. But when you look across offshore, it's actually working. And therefore, just follow that. And when we have an opportunity to convert some of the offshore PSAs, because the customer and the partner is ready, we will do that.

Okay. Thanks very much.

We now have a question from the line of Colin Moody from RBC. Please go ahead.

Hi there. Thanks for taking my questions, too, if I could. Maybe one first on capital allocation. This is a question that's emerged for the first time in a little while. Obviously, you've had good cash flow development, and the net debt is where it is right now. How do you feel about potential future use of cash, I guess in particular in regards to future buybacks, further capex or investments, or is there anything out there to buy? And then just kind of a quick accounting question as well. It looks like your incremental DNA this quarter was up around 33 million in this year, this quarter. It was up incrementally around 30 million in Q1. If I recall, I think the full year guide was for a step up of around 200 million year on year. I wanted to clarify as to whether expectations have changed around that 200 million, or is this just the case that the DNA will be a little bit more back-end weighted? Thank you.

And Colin, let me take that first to your capital allocation question. Firstly, and we have that also well described in our quarterly report. Firstly, we invest in the business. And then secondly, we look at dividends. We were very happy that we could pay out dividends. this spring and you also saw we did some share buybacks there and that's our ambition to continue that as we generate the free cash flow. So we confirm what we have previously said and you can also see that in the documents. In terms of depreciations and amortizations, we have previously guided up to the 200 million. And we do see the increase. And as you rightfully say, it's maybe less than what you would have anticipated at this point in time. But there were some minor delays. But in general, we are on track. And the number we previously guided is the number you should model in.

Thank you very much.

The next question comes from the line of Dan Togo Jensen from DMB Carnegie. Please go ahead.

Thank you. Maybe a question on the onshore business. Where is it today, so to say, relatively to where it's been historically, just to understand what is still outstanding for the onshore business to lift it towards the the 10% EBIT margin. It's just a matter of operational leverage. Is there still some ramp-up issues in the US, etc.? And then maybe on your offshore business, the loss that clearly hits you here in Q2, how should we think of that in absolute terms in coming quarters? Will it expand? Just a reflection on when you say, Henrik, the ramp-up is peaking here in Q2. So will offshore losses expand further in coming quarters as you deliver more at more loss, so to say? Or how should we think about the absolute level of offshore losses in coming quarters? Thanks.

Thanks, Dan. And I think on the onshore, you're absolutely right. You put sort of the onshore US, which has, of course, caused us still some trouble here. But you can see the deliveries are going up also in Q2. And I think, as Jacob mentioned, there was another 500 megawatt that went out of the door in the U.S. in second quarter compared. So, no, we are making progress on the onshore. And if I could give credit to the five regions that we are having executing on onshore, there's not much I will do differently in onshore this quarter. when I look at both the profitability and also the execution. And you know we control how we price it and we also know how we look at when the project is delivered, what was the post calculation as well. So we are really pleased with that. So that probably just sends you one signal off that it also illustrates quite a bit of how much we are right now using of that positive into the offshore ramp. And as I said, I know you would love to have a date or a quarter where this either tops or, I can't say that per se, but what of course it is, the ramp up cost, gets diluted by two things. First of all, when we start having a volume number of assets coming out of a factory like in Stettin in Poland, that is helpful because then you start having assets, not just more than 500 colleagues going around. And of course, it triggers costs out of this. And therefore, if we look towards the end of this year, we should have passed what is the offshore peak of the ramp-up cost. And that also means at that point in time, we are looking pretty tight at each other internally of how that is then ramping down. And of course, ultimate ramp-up cost should get towards zero. I just can't say per quarter yet. when that is going to happen. So a lot of bit of high fives around the onshore in the quarter and a lot of attention to how the ramp-up costs are not only spent, but also contributing to the success of offshore. And let's not forget, we have quite a number of turbines offshore standing now at sea, and we are really pleased with that.

Thank you.

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

Hi. Thank you, and good morning. I just wanted to ask again on the offshore business. It's a fairly sort of small profit quarter, so I guess it's hard to really understand. Were the offshore losses and the development of the offshore business kind of in line with your expectations, or were they actually a bit worse? And maybe just sort of qualitatively, if you could just talk through kind of the ramp-up What's going well, what sort of specific parts of it are maybe kind of going less well and where maybe are the issues and where are the successes? So just qualitatively in terms of actually how that is progressing, where are the challenges to kind of better help us understand sort of actually mechanically what's sort of going on there. Thank you.

Thanks, Max. And I think here on the offshore, the ramp-up plan or the ramp-up is on plan, so to say, because I think when we looked at it, could it be that we are one week adrift from the plan in a factory in Stettin in Poland? Probably. But when I look at Stettin in Poland and walk around to the employees there and how we are now seeing We are exchanging between linear and statine on the nacelle. That feels really, really good because that gives us, first of all, a flexibility of production and manufacturing going forward. It also gives us a little bit of a backup in reality that how is it if there is something happening in Linne or in Stettin, then we have at least two sites where we are well under the way with the nacelles. When we look at the two projects, we knew anyone who are ramping up in offshore, and let's not forget, we have done that before. It's more than 10 years ago, but we have done that before. So therefore, it is costly because you have two projects, and the two projects as such are not here to cover what we are spending in getting the technology and the factories up and running. You saw some of that when we also had almost idling status in the US. But then the turning point comes when we get to 26 and 27. First of all, because we have more volume and more projects to be delivered. But the secondly is, of course, some of those ramp up costs you won't keep having. And what am I talking about here? You spend quite a lot of people extra in there to put it. And some of it is also when you pass a technology from prototype to serial manufacturing, you have a number of nonconformities you put through a finish line. The finish line is a busy place when you have new technology working. I can't praise the team enough for doing it. Of course, I would rather not have any finishing to be done because that was a sign off that we didn't have any nonconformities, but that's not the reality of an industry we work in, wherever you work in the world. So therefore, Do the diligent finishing, and that is extremely important for the partners that are able to see that walking around in our factories as well. Close collaboration with the partners, really appreciate that. And then, as I said, the finishing should start coming down in second half of this year. And of course, that in itself will also start reducing the ramp up cost we are having. But as you can almost hear on the voice here, this is a substantial drain on the EBIT in the power solution in the quarter. And with that, I'm not going to give you a percentage on it because that's not what this is about in a small quarter.

Okay. And maybe just then, I guess the second question, just on the lower warranty costs, because that is kind of quite a significant improvement year over year. I know you've talked about this kind of improving over time. Does this feel like kind of the new level that we can sustain, or was there anything particularly kind of one-off in there that we might see kind of that increase again in the second half?

That is not expected. We run a process, as you already know, Max, we almost sometimes run case handling in that quarterly number. And I think here 3.1% illustrates where we are running and where we are seeing the business. We didn't have any extraordinary things. as you can probably also see in the split between what we provided and what we used. We used slightly more than we provided for, which is also a bit of the instruction, get it done and get it fixed, what is in there in the lost production factor. So there are no significant new cases, and therefore 3.1, is a good running currently as where we are and where we see things developing. It should still be in that direction from when we saw 4.3 for the full year of 2024.

Okay, very clear. Thank you very much.

We now have a question from the line of Kasper Blum from Danske Bank. Please go ahead.

Thank you. First of all, a question going towards the U.S. onshore business. Obviously, it seems as if you're looking into a busy rest of 2025 and also 2026 look right now. And I noticed that the TPI filed a chapter 11 earlier this week. Could you give any sort of indications as to whether you see any risk to deliveries of blades from that side? And maybe also talk about if you can't get blades from that side for whatever reason, what the backup plan is? And then secondly, Henrik, you did mention that overall you see the offshore industry continuing and that sort of hiccups are maybe sort of a bit more project specific, but very obvious, of course, with being in Denmark that there's been some hiccups this week. Can you give any kind of comments to the pricing discipline from an OEM point of view in that sector? Are you Are you able to keep pricing on offshore with some of the developers struggling, or do you need to sort of help them getting back on their feet? Thank you.

Thanks, Kasper. Quite two, I will call them, large questions in that sense. So if we look at the U.S. onshore and the outlook, I see the world is fragmenting almost into two beliefs here. And I... Probably trying to see if we can get the merge understanding of it. If you look into it, this policy sits clear way at least towards the end of the decade. So for somebody to try to make it as short as possible, I can sort of hint that that might is guided a little bit of the personal interest of AIDA. investors or the industry's share position or on the valuation, where I think this leans very much towards what is underlying happening in the US. The energy prices is on an upward trend, whatever being said, factual. electricity is in higher demand than it has been before. Electricity from especially the tech sector is going up, not down. So therefore, some of the fastest, some of the cheapest thing to get access to right now and most value, therefore, for any investor's money in the offtake is actually renewables. And therefore, wind is a priority. And that's what you have seen in just a few weeks here starting in Q3. That one can't predict and won't predict where it ends in terms of order intake for this year because it's simply too lumpy, as you can also see. Some of the orders, this is not Europe, Germany, where it's unannounced. It's in excess of two, three, 400 megawatt and upwards. So therefore, there's more to come. And I can only hear say, fantastic, we have such a commercial team and we have such an experienced leadership team in the U.S., both in terms of public affairs, but also in terms of the commercial setting. When it comes to TPI, I'm pretty sure they didn't go into chapter 11 for going out of business because then there was no reason to go into chapter 11. So now it's up to TPI to figure out what they want to do with their prime customers around in the world. And of course, we are one of them. So let's see when they come. I think if it's right saying here, it's 48 hours and I assume 48 hours in, There's quite a lot of other things going on in that debate. I think from a personal, I think, I feel for a leadership team in TPI, it's difficult conditions, but I also know if you're able to bring it out. TPI has been a longstanding good partner for us. So I'm pretty sure that there is all reasons to believe that operations continue and also the good partnership continues somewhere in here. Then we see how that goes in chapter, if they come out of a chapter 11 as a one unit and a one partner and one TPI or they come out there with different sets of assets. We will look to that and if they need help, they know they can always talk to us. On the offshore, come on, no one is able to price a project and compensate if you need more capital to the tune of 8 billion euros. So therefore, that is not a pricing issue, Kasper, if I can be a bit direct and brutal in that sense. That is something else. It's probably financing of a project rather than pricing. So therefore, I think... Our part of the industry went through quite a difficult time, and some of it led to that auctions got pulled. I saw still some countries around the world still struggle to find the offtake price where they still feel or think that offshore will be more cheap than any other energy assets available. And that's simply not the case. So I think what I saw most recently in the AR7, which we have seen, we have worked closely with the UK government, they've had their experiences both as failing ARs auctions. But the reason AR7 is probably one of those more modern ones where I will say, here is the thing, consultation with industry across both from developers, OEMs and others. And that's where you will then have almost a preset of who is going to come in here and how will value be created. So Again, a little bit of a flag up and a positive to Ed Miliband. He is running a good way of doing it. And we can see some of it is actually compared and shared into the EU setting as well. So offshore, it's not a thing about pricing in the case you are discussing this week. But as a general thing, don't take it for more than that's a project problem and a financing issue.

Thank you, Henrik. I appreciate the detailed answers.

We now have a question from the line of Klaus Almer from Nordea. Please go ahead.

Thank you. First of all, a warm welcome to you, Jacob. And then to my two questions, and I will not ask about Australia this time. but more talk about the offshore and the ramp-up. Maybe you can give some color to what was actually included in the 2025 guidance back in February, not in the absolute number, obviously, but how does that compare to what has actually happened in the first half of this year? That would be the first one.

Thanks, Klaus, and I appreciate your personal reservation here of not asking about Australia. So thank you for that. I'm sure we'll speak more about that later in the week. I think if we look at the guidance when we initiated that in the beginning of the year, I will say within that guidance range, there are things that will always do a bit better. And if I look at that right now, I will say the onshore year-to-date execution and what we are looking into the second half of the year looks like that's going to contribute positively into that guidance range. And if we look at the offshore ramp, I think we are spending slightly more than what we had in the beginning of the year. That is in some ways a precaution of not ending the year of saying we could have done better or we could have done something else in the ramp up. But no mistake making here. I mean, internally, everyone knows that it's not a freebie of spending money in ramp up. So therefore, spend the money wisely investing in it. So those are the two various. Then I will say since February, if we just look at some of the external markets, some of the external things that has happened, whether that has been in, as I mentioned here, on some of the nominal things on FX, but you've also seen tariffs. I mean, come on. It's not easy to get a fixed point in any of the weeks where we have been. So some of the tariffs we are doing, We're doing really well in both being firm and seeing the tariff and also finding mitigations. And at the same time, in all of this, pricing levels for the world will be higher because tariffs will go to the final end customer, whatever value chain you sit with.

Fair enough. Then the second question is about the commercial reset of the service division. How far has it come to this termination or repricing of the unprofitable contracts? And did this repricing or termination, did it have an impact on Q2 EBIT? That was my second question.

Yeah, no, I understand your question. You've got a couple of things going here. You've got two buckets that are doing. Of course, you're going through your whole setup of contracts in there, which is only natural. And then, of course, you've got a natural flow of renewables that comes to you. And therefore, you treat those two equally. But at the same time, it goes without saying, from a contractual point of view, the renewables are pretty much easier to get to because there you will have some of them there you just have a natural. Is it an extension or not? And as I said earlier... Probably this we would have expected to see a slightly more negative effect on gigawatt under service. It hasn't happened. And that probably is a good illustration of no one is generally unclear about our own costing internally at all. So therefore, when you see this, that also means customers are having deep insight in how we are pricing, how we are costing this, and has led to that we are both renewing probably a higher percentage than we initiated Ford, service business Ford, service leadership team Ford, and I definitely Ford two quarters ago. And then I will say on the more resetting on some of it, that's more a partnership portfolio discussion we have, but that we have across the world. And with some of that, that gives some adjustments that is included in the run weight. We don't want to do this opening a Pandora's box of where you can start doing one-offs and other things in service, because then it it gets a bit out of hand because then it's one of course of termination and other stuff. So it's in the runway, it's in the operations. That's how the instruction is to the global service team around the world.

Okay, I will say thanks for that answer. It will not be easy to put that into an Excel spreadsheet, but that's how it is, I guess.

No, but you can definitely hear on me that there's no positive upside in a run rate from that exercise. So that you can know. Then you just need to find out what negative number you want to put to it.

Thanks, Henrik.

The next question comes from the line of Tore Fankmann from Bank of America. Please go ahead.

Good morning. Thank you for taking my two questions. The first one would be, during Q2, one of the European operators spoke about price pressure of the European countries from Chinese competitors. What do you see here in the region? And how would you describe how protective are the governments in the European countries regarding the Chinese competition in wind? Take the second one afterwards. Thank you.

I think a lot of things is a different world today than it was 24 months or 48 months ago. So I think people are generally a bit more mature in the way we look at things. And I think seeing the geopolitical landscape right now, I think everyone are fully on board with what also goes towards cybersecurity and protective measures of your critical infrastructure. We participate heavily in that. So I'd rather say, I mean, that there is so many other factors right now than a price discussion only. So therefore, if you have a price pressure point discussion, then I think you're probably up against something else where you haven't really talked about what the solution is. And if somebody falls for that, then I think it's the wrong part of it. I think EU is fairly mature. I think, speaking also on behalf of Wind Europe, Wind Europe is making very good progress in exchanging also what are the things and what are the components we can work closely with and what are the components and probably electronics that you should be very, very careful about. So that comes into the normal free buckets we say and we also have. Listen, it's affordable, it's independent and secure, and it's sustainable. And that's what we have as a solution. And I see a lot of more. There will always be the opportunistic that will try to see something. But if it doesn't get connected into the grid or it's a build and sell, then it might not work down the line.

Okay. Thank you. My second question is a follow-up on the service contract renegotiations. Could you maybe speak about how restrictive are your customers and partners of these renegotiations? And if I understood you correctly in previous quarters, you were mentioning that you will try to renegotiate all the contracts by the end of 26, so basically over the coming one and a half years. How easy is this to do in case you want to cancel a contract are they not just simply legally binding? Or can you just cancel out of a contract if you're not willing to agree to the new terms? Thank you.

No, I think here there's many questions in your one question here. I don't think we can have a commercial reset done by a specific date. I think this is also a way of living when you look at it and when we look into this going forward. Because If you have an average 11 years of contract duration, you will see somewhere a little less than 10% of your contract portfolio coming towards you with the usual sort of construction bumps that are writtenly led to the service contract. So therefore, you see this as an ongoing basis. Then when it comes to your question sort of more specifically, how easy is it? I don't think anyone says it's easy when you get a call from somebody that says we need to have something here in discussion that doesn't work terribly well for us, but probably works pretty well for you. And then if that was the only thing you were to discuss, then it will be maybe a short conversation. But as this is all related to both partners we have had for maybe decades, we have partners where you need new orders, new capacity. different solutions or even repowering because there are also some of these service contracts that are now up for discussion where it might for the customer and for us be a lot better and smarter to repower some of these older turbine makes so a lot of things are up and therefore I'm saying here of course we can't single handedly if that's sort of what you we can't say that we just go single hand out and cancel we're not We're not stupid to pay a cancellation LD or something that opens that one up. But on the other hand, no one wants to force penalties on each other if you can find a good partnership and a good commercial settlement. Okay, thank you.

We now have a question from the line of Christian Tornøe from SED. Please go ahead.

Yes, thank you. Two questions for me as well. The first one again on the offshore ramp up. So with the cereal manufacturing in Poland, have you reached cereal production in all the offshore sites and are you fully staffed at this point in offshore?

I think we are fully staffed to where we plan to be in terms of, for instance, a police factory to what we are doing right now. But of course, police factory also has additional capacity, which we are going to take advantage of, Christian. So we don't run ahead with shifts or anything else until we know that we have that capacity restriction as well. So I think we are where we would like to be. There's no doubt that if I walk into one of the factories today, I think we are making great progress in terms of tack time and other things coming down in the clear manufacturing, the serial manufacturing of the standard. I think where we see that we have still some more work to do is in the finishing of the assets before they leave for harbor and finally ship out.

That makes sense. And my other question goes to your comment when you presented around the LPF. Just curious, the sites you mentioned where you are doing major repairs, are they identical to the sites that you also talked about in Q1, or have there been sort of new sites with these major repairs?

Same sites.

Same sites. Excellent. Thank you.

The next question comes from the line of Akash Gupta from J.P. Morgan. Please go ahead.

Yes, hi. Good morning, and thanks for taking my questions. I'll ask one at a time. My first one is on the U.S. So, Henrik, I think you mentioned early on about the attractiveness of the U.S. market given the electricity demand growth and boosted by data centers. The question I have is on wind competitiveness in the U.S. without subsidies, because when we look at some of the data out there, studies done by third parties, we see that wind, even without PTC, is more competitive than new CCGT or nuclear subsidies. They can be built quite fast, but then, of course, the problem is intermittency, which can be fixed through some backup generators. So the question I have is that given what we see in the U.S. market on the demand side with so high demand for electricity and more so for green electrons, what sort of discussions you are having, not just in the near term, but maybe like looking on the longer time horizon on projects where basically customers may be not caring about which subsidies you get, but more about when can you, how soon some of these projects can be built. So I want to start first with the U.S.,

Thank you, Akash. No, I think you're very right in your sort of outlook. And I think, of course, no one would build additional assets if it wasn't needed and the offtake was not needed there. I think also that the demand side doesn't change significantly from this when we look towards the end of this decade. So I share that. On the other hand, it's also when you are finding yourself in an environment where you have a known, quite well-structured incentive to build out further capacity in the U.S., which we both know has been existing since 1992. That has driven an enormous capacity. But also when you run the capacity up, of course, you bring the levelized cost of energy down because you have a full supply chain. You have construction, you have supply chain, you have harbors, you have railways and other stuff that is very much. And by the way, we have factories there. So that also means that you have a levelized cost of energy that will also, by the end of the PDC cycle, prove to be competitive. But of course, it will be open there to competitiveness and comparison to some of the other assets. But you are mentioning nuclear. Then we also have to talk just ordinary facts. It doesn't allow anyone to build a new nuclear facility in 36 or 48 months. We are, as you know, in the UK, we are probably talking at best 15, 20 years. And then in 15, 20 years, it's very, very difficult to foresee what the levelized cost of energy will be 20 years out in the future. that's a lot easier with something you know for a fact that is tangible in 36 to 48 months. So I think we got some strength here that we are definitely putting. And the good thing is our customers, our long-lasting partners, are seeing the same. And, of course, they are backed by that because these are the customers' partners that are also selling the electricity products to their customers or end users in that. So we see the same. I can't say fixed point what is the offtake looks like and what is the levelized cost of energy in the US in three or four years time from now, because we got a couple of variables, which of course we have had to deal with in the previous couple of quarters. So if tariffs are hitting some of these things and if the industry is having these which seems to be more shorter term stop and go again, that's not helpful. That was what I talked positively about in the IRA. It was a 10 year. Now it seems like we are down to what we also have lived with for many decades, three or four years execution. But in the outcome of it, clearly positive that we have a proper structure and we have a proper both ramp up and ramp down of US in its current policy.

Thank you. And my second question is on the guidance. So this year you started with 300 basis points wide, which was 100 basis points wider than last year. And we already had seven months, but still you are reiterating 300 basis points wide guidance, which means a wide range of scenarios for the remaining five months. Maybe can you talk about the uncertainty that's still out there and the opportunities that are ahead of you and Can you indicate if the midpoint of guidance is still a realistic outcome for the year? Thank you.

As I said, when you have a guidance, the whole guidance is a potential outcome for the year. So I will sort of say here, maybe it's a little unusual that we keep our 300 basis points throughout this quarter as well. But I think also in all fairness, if we just take the last six, eight weeks, It is still with a bit of variable to what we see for the year in terms, especially as you can see the ramp up in the U.S. is happening as we speak. But you still see then there is a pause in something which is helpful and then there is something new being introduced. So I think here we just have to work through it. And now U.S. is definitely a very, very busy place in construction in second half of the year. Then let me also, we talk about that all the time and I think we said it in February very, very specifically and Jacob talked to it here as well. The first half of the year is lower than potentially also compared to the second half of the year. So I sort of sit in here and saying we performed really well in the onshore in the first half of the year. Keep that momentum because that is part of also what allows to have to still have the guidance range in that sense, because that is, of course, what can bring the guidance towards the higher end of it. You are fine in having a guidance where you take the midpoint and that's what you work with. As I said here, there is also, as you will appreciate, there are a couple of FX things that have influenced some of the nominal things in the guidance, but we haven't changed. That's pulling a bit in the other direction. So far, we're really pleased with it. We are where we are and we can see that. And of course, if we get to that, anyone can see that it's going to be a high EBIT half year, second half of the year, and it's going to be a high cash second half of the year, which boards well from when we get into November release of Q3 and probably in November Q3. not hinting anything, but we should be able to maybe narrowing it a bit from the 300 basis points when we talk again in November.

Thank you. We now have a question from the line of Ajay Patel from Goldman Sachs. Please go ahead.

Good morning. Thank you for the presentation and welcome, Jacob. I first wanted to start on service, please. So you presented this plan, all the initiatives that you're working on, highlighting it's a strategic priority for 2025 and 2026. And I look at consensus, and I think it's like 17% to 19% EBIT margins for the next three years, including out to 2027. And I just wondered, when you say that these benefits will take time to materialize, are you saying that Ultimately, as we get into the back end of 26, we should start to see some financial improvements, maybe not all the way up to the 25%, but progress versus that sort of 18% to 19% range. I just wanted a little bit more granularity on what you meant by these statements. And then the second question was just on U.S. tariffs. Is there any sort of indication of size? Because clearly when you set your guidance, Back in February, tariffs weren't there, and now we have those as an additional cost. And clearly, look, the offshore ramp-up will be quite wide-ranging depending on where you end up on that consensus, but that number would help even if it's quite a broad order of magnitude.

Yeah, I think, first of all, if I start in the reverse order this time, I think on the U.S. tariff period, I would love to say I had a fixed point, but I don't, because the US tariffs have simply been a bit of a moving target throughout this half year. So I would rather say we do whatever we can together with customers to mitigate it. When we find ways of doing it, we lock it down and then we take it. And as you will appreciate, we have we have in this case most of those tariff impacts for 25 covered in and around with the customers. So that we are working through in that sense. But there are also with that when you have special components or special countries taken with us where we have the factories, but we still have things that comes into the factories that will be influenced by it. So I think it's manageable. Maybe it gets a bit tense, but that's always the case because... If you open the television, tariff is a good thing, but I can't find any good consequences of tariffs generally, even though somebody else is saying it. So it will go negatively for trade and it will go negatively for the end consumer period. I think when we talk about the service recovery plan, I think what Jacob is rightly saying here, we often asked already up front, this quarter, this was where it was, is next quarter the one that goes better? And that's where we're just saying right now, we have a plan for... until the end of 26, services working diligently through it. There is under the 17.2% in this quarter. It's quite a number of net movements from individual contracts and other stuff, but it ended at 17.2%. Rest assured that immediately we see the momentum. Then there is no holding back of our part here. of getting this above the 20% and starting with a 2 again. But we just can't have, and we don't have visibility from when that is the right thing to say to you on this one, Jay.

There's a bear with us, but it's coming.

Yes.

That's fine. And then just because of the tariff question, do you mind if I just replace something? Offshore, right, it's a combination of ramp-up costs that we need to – the absorption of fixed costs, partly a volume, I guess, issue, and then maybe the margins on the contracts. You have quite a sizable backlog in offshore now. You're saying that ramp-up costs should maybe peak towards the end of the year. Does that sort of indicate quite a material increase in profitability or much lower losses going into 2026?

I don't like to comment on 26 when we are in 25, but I think here there's no need to keep the ramp-up cost if you don't need them, right? So therefore, if we look at this, there will be some ramp-up cost, there will be some finishing line we will still have in 26, but it will be significantly lower.

Thank you. The next question comes from the line of Deepa Vankit. Thank you.

My two questions. The first one is on the U.S. As you mentioned, next week there should be a guidance from Treasury on what would constitute start of construction. I just wanted to know how much of an uncertainty this is for your customers from placing orders, or is there already enough safe cardboard projects? And, you know, when you mentioned that... you expect orders to not continue just for the next two years, but the end of the decade. I'm assuming you meant deliveries till the end of the decade, if you could just clarify that. And the second question on offshore, obviously you're taking time. Can you give us any idea of there are any delays for the wind farms or whether there's any financial consequences associated with these delays? And, you know, are you behind schedule by six months or just any kind of idea and if there's any consequence of this for you?

Thank you, Deep. I think on the US IRS guidance, probably I learned here that it's better to wait for the 18th of August or whatever date around that where it comes out. I'm pretty sure that they do their diligent work around it. We know what the existing rules are. And normally, I'm saying normally, under normal administrations in many decades, we have seen when they change guidance, it is from that date and onwards. So therefore, we have also seen some of that where orders either is already permitted, is already off taken, is already done. And therefore, you see those orders not awaiting an IRS guidance anymore. on this specifically in construction. Because, of course, you would appreciate if you want to qualify in construction after a certain date, I'm pretty sure that is where the IRS guidance will come. So guessing might be that under the new IRS guidance, there could be a slightly shorter window to build out before it's in service, or it could be that the usual rule of thumb of a certain percentage, smaller percentages of safe harbor, That percentage might go up, which was my hint of saying it could be that some of the safe harbor orders start looking as small normal orders in the sense when we get on the back end of 18 of August. And of course, if you are... If you're already out there and you have done that, then you're probably under the old rules. And after whatever date comes here in August, you will be after the new rules. So that will be sort of my interpretation of where we are. Then in a week's time, we'll know if that was a good directional answer. On the offshore... I think the delays is always going to be a discussion point because the delays goes for the full project. It goes also for access and it goes for grid. It goes for all of these things. And generally, what we see in offshore is that it is not as mature. And I think that goes for all of us in doing it. And therefore, there will be... also just a simple thing that sometimes the weather is that you can't do what you normally would do. So therefore, there will be financial consequences if we are the cause for a delay. But on the other hand, right now, we're working diligently through it in terms of the two projects we are working with. And therefore, for us, we have two eyes on the two projects we have, absolutely, and full attention to it. But we also have a very strong attention and also... how we are having the capacity available to the further ramp up of capacity that happens from 26 and onwards. So for us, this is the important thing. This is important to get the two projects right, but it is probably from a investor's point of view and also from an industry point of view and partner's point of view, as important that we get the right capacity mustered from when we look in 26 and beyond.

Okay, thank you.

If I could hear by just having the last question in this round as we are quarter past 11.

We have a last question from the line of Martina Welke from City. Please go ahead.

Yeah, good morning. It's Martin from Citi. Thanks for squeezing me in. Just one final question. It comes back to tariffs and how it links into the service business. One of your competitors did take an adjustment to their long-term service margin expectations in the U.S. because of higher tariff costs. Obviously, when we look at your U.S. business, there is a large service backlog. It doesn't look like that's impacted your profitability or maybe it was offset elsewhere. Have U.S. tariffs been an effect on gross margins in the service backlog or have they been offset? Or how should we think about any risk or anything like that inside the service profitability because of tariffs? Thank you.

Yeah, first of all, as always, please address competitors' comments on some of this with what they're seeing. We have a lot set up in the US in wind. We have a supply chain there in the wind industry where it's highly also localized. And therefore, we don't see the same principles as somebody else has mentioned. So therefore, I would leave that with them to decide. sort of argue. And for us, it is a combination of both backlog portfolio and also the localization of supply chain we have in the US. Otherwise, they are just sort of say US business, great business, long contracts and good business. So therefore, I don't see a imminent push from some of the tariffs into that part of the business in the US.

Good. That's great to hear. And if I could just clarify one other question as well. Obviously, the ESP this quarter at 1.11, that's a pure onshore number. You mentioned in your opening remarks both the words stable and positive. But just to understand, if we do sort of normalise for a mix between EPC and all the rest of it, is pricing still effectively flat or is there still some slight positivity in pricing because of some lingering effects of raw materials, labour and these kind of things?

I think it's fair saying here, as we are in some of the markets where we have different mix, we didn't have any U.S. orders in Q2, in fact, and therefore what we have seen in here is a good market across predominantly EMEA where there are a good mix of that, Martin. I think here we just say we're really pleased with it. And you're rightly saying it's one of those quarters where it's a pure onshore ASP that is comparable with other quarters. But as we now have US up and running and we have some of the other markets also, for instance, in Asia Pacific, then there will be a different pricing. We are very pleased with this and the discipline that goes into the commercial setting and pricing here. is still more than intact. So we're really pleased and positive with that.

Great. That's good to hear. Thank you very much.

Good with that. Operator just wants to round off and thank everyone for the interest also for many of them. For those who didn't get access here on the Q&A, hope to see you in the coming days where you will also have a lot more time one-on-one or in the groups with Jacob and Rasmus. So we look forward from Total Vestas team to spend more time on the coming days. So thank you so much and keep well.