Vestas Wind Systems A/S (VWS) Earnings Call Transcript & Summary

Good morning. And welcome to this presentation of Vestas' full year results of 2019, 5th of February. And with me here -- I'm Henrik, and of course, Marika next to me. So we will take you through our presentation of the results for '19 and also looking into what we expect for '20. So with that, let's get going. First of all, key highlights for 2019. We came out of the year with our highest ever order intake. It ended at 17.9 gigawatts, and that is up 26% compared to our order intake for 2018. That also leads to that we have now a combined all-time high order backlog of EUR 34 billion, and we will see the breakdown a little later. We also, there, see that our full year 2019 guidance were met on all parameters. We ended at a revenue of EUR 12.1 billion, which is actually in the high end, and we just have to say, coming out of Q4, helped also by favorable weather conditions in the Northern Hemisphere. We saw EBIT margin of 8.3% for the year, and we ended at net investments of EUR 729 million. We had a very successful year for the Service business, continues to grow, 12% up, and we ended with an EBIT of 26% for the year in the Service. So another stellar performance of that business. Then we also, end of the year and in January, launched our ambitious sustainability targets, first of all, to incorporate sustainability in everything we do; and last, but also because it's the right thing to do. And we'll talk more about that a little later in our presentation here. And then, of course, with pride, we recommend a dividend for the sixth year in a row. Recommended dividend payment is of DKK 7.93 per share, equaling to a payout ratio of 30% of our net profit. So with that, let's go into sort of the details. So when we look at the fourth quarter order intake, the fourth quarter order intake ended at 4.4 gigawatt, which is slightly lower than fourth quarter 2018. But also what you would appreciate, we had a more equal spread of large quarters of order intake throughout the whole year of 2019. Especially in Q4, U.S., Poland and Finland were the main contributors to that order intake. Importantly as well, in Q4, we saw stable pricing. We ended at a pricing for the quarter of 0.79, which, of course, has the usual relation to geography and scope and turbine type. But we are very happy with the remaining stable on the pricing here, which then led us to have an average pricing for the whole year of 0.77. That, of course, then combines into an all-time high order backlog of EUR 34 billion. It is up EUR 7.6 billion year-on-year, an increase of 29%. So for the turbine parts, we had EUR 16 billion now. It's up EUR 4.1 billion compared to a year ago. And for the Service, we are now at an order backlog of EUR 17.8 billion, which is up EUR 3.5 billion in total. When we click on the sort of the regional highlights, if we start with the Americas first, I think it's clear for everyone that we now saw an extension of the PTC, clearly favorable and friendly to the industry, but also to the owners of the assets. So there is a 60% now PTC solution in place for '24 positive because it creates more parity with solar in that period. And of course, it also leads to greater transparency for a bit longer period. We also say here in the Americas, or especially the U.S., we still work hard on this deal and the tariff mitigation because, even though that there has been an ease of tension with an agreement of a stage 1 agreement between China and U.S., it is also fair saying we didn't have any positive effect of that yet from stage 1. When we then look to outside U.S., I think it's fair saying most of other countries in the Americas are still making positive steps towards renewable. Latest here we see Chile now is allocating 1.3 gigawatt of a neutral technology auction in '20. We will -- we see new rounds of auctions in Brazil, and there are various other countries in that region that are making steps into the renewable part. When we look at sort of the detail, we had deliveries of 5.8 gigawatt in the full year of '19, it's up 17%. If we then look at the order intake, we ended at 10.2 gigawatts, it's up 64%. Main drivers here, U.S. and Brazil, equally contributing to the increase over 2018. And we then look at the revenue, we ended at EUR 5.2 billion from the region, up 18%. And of course, out of that revenue, Service contribute 12% of the EUR 5.3 billion. We delivered in 9 countries, and we have service deliveries in 18 countries in Americas. We then go to Europe, Middle East and Africa. Goes without saying that the market highlights over here is something everyone talks about, that you have a green deal in Europe, which, of course, puts us on a trajectory for 2050 towards a carbon-neutral Europe, which, of course, will be underlying, very well supported and also underlying positive for the trend towards renewable. We see it in a more sort of detailed part. We see a 2.2-gigawatt onshore wind being allocated in Poland in '19, and we know there is another gigawatt auction expected in '20. We have seen a late year, Germany, smaller auction being oversubscribed, which is positive. We've also seen something in the beginning of this year where I still think we are now seeing a start of Germany, but still with some of the same bottlenecks around permitting and some around the distance rule still being in place and being discussed. We expect to have a 1.2 gigawatt auction in Italy, and I think we could make the list even longer in and around Europe because plenty of positives there. Positives outside just main Europe is Middle East. Saudi Arabia, leading -- still aiming for a 16 gigawatt and finding a program for 16 gigawatt of wind in 2030. And then besides that, fairly positive across also Africa with initiatives for that. The region, as such deliveries, 5.3 gigawatts in 2019, up 29%. If we look at the order intake, total order intake of 6 gigawatts in the year. And we had a revenue of EUR 5.4 billion in 2019, up 26%. So here, as I said, in the order intake, Finland, overall, we're leading in Europe among order intake of 21 countries. So really a positive development. Out of the EUR 5.4 billion in revenue, service accounted for 19%, and we had deliveries in 25 countries, and we do services in 40 countries overall. Then we get to Asia Pacific. And I think Asia Pacific, probably the one where we will say from an order intake point of view, a little disappointed, but of course, that is also difficult when you have such stellar performance in other regions. But here, we will say we see an increased commitment in China. Clearly, they are, right now, finishing 2020 where there will be new market rules applying 1st of January '21. And of course, we are part of those discussions as well. We see in India that there has still and there will still be some challenges in and around the way the auction are set and orchestrate for players like us. So, therefore, target is still the same, 140 gigawatts by 2030, but we still need to see how we can, together with the Indian government and ministers, open that way of getting the auctions to flow more freely than they are today. And then last but not least, it goes without saying the whole region has their eyes turned toward renewable. And just Vietnam is a good example of where we also seen initiatives, and we also seen orders coming through in 2019. Overall, the region ended with deliveries more or less exactly the same as in '18, 1.7 gigawatts. We saw an order intake being 1.6 gigawatt that is down 30%. But there I'll also just highlight that we are in a region where small orders of a certain size can influence that a lot, and I think that is more down to a timing perspective than it is anything else. And then lastly, but not least, we ended with a revenue of EUR 1.4 billion. It's up 5%. And therefore, we can also conclude all regions positively contributed to the revenue growth of Vestas in the 2019 account. In the region, 13% of the revenue comes from Service. We did have deliveries in 8 countries, and we do services in 11 countries. So with that, a good way of getting and entering into the Service business. Had a stellar year again. Clearly, now we got 96 gigawatt of onshore turbines where we have active service contracts with. It's a big increase this year. We have seen that we have 18 years of average duration on new contracts signed, which is very long. And we also now deliver contracts in 69 countries across. I will say, on key highlights over here, yes, we've repowered one of the world's most northern wind farm with a 30-year full scope service contract as part of it. We are doing more and more fleet optimization and both improving efficiency and also life extending for some of the older turbines. And then not least, here, we also saw that we took orders for 3.5 gigawatts of contracts signed across 12 countries in multi-brand. And of course, there, you would appreciate when we have a contract length of 6 years and ending up with 18 years, then they are underlying in the owned captures and others, they have very long contract maturity developing here, super positively for us when we look years ahead. And then there is just the normal breakdown of how many gigawatts we look after in the 3 regions below. So with that, I will jump to the offshore, where the offshore here probably had a slightly disappointing year in terms of order intake. But as we also have said all along, it's much longer. They come in bigger clusters when they do the tenders here. But just the short here is a track record, we have 4.8 gigawatt under both installed and operation. We have a pipeline of 2.8 gigawatts under installation and unconditional orders. And then we -- by year-end, we had 3.8 gigawatt of conditional orders where we are a preferred supplier. On the highlights over here, we become preferred supplier on the Hibikinada offshore wind farm in Japan, which is the first sort of project where we also feature the V174-9.5 megawatt. We had a conditional agreement to supply same for the Arcadis Ost in the German Baltic Sea. And then we have installed, again, the V164-9.5 at the Northwester 2, of course, the first turbine that we added exceeds 9 megawatt, which was the old powering of it. And then below here, you will see the projects in progress in Q4 2019. And I will leave that with you to go -- to read. And with that, I'll pass over to Marika on the financials.

Thank you, Henrik. So if we start with the full year, you can see that revenue increased. We saw a change of 20%. So really good performance and really good performance in terms of the extreme back end-loaded profile we had in '19. The growth is driven by both Power solution and Service. You can see also that gross margins are down 1.6 percentage points. That is impacted by tariffs, transport and raw material prices, as discussed before. And the positive on the gross margin is the sale of the Romanian project. As a consequence, you see that EBIT margin decreased by 1.2 percentage points, and that is, again, driven by the lower margin presented here. So if we have a look at the Q4, a record high quarterly activity levels. So really, really high revenue growth compared to last year of 38%. That is primarily driven by the Power solution and again due to the back end-loaded profile we had in '19. You see gross margin down by 1.7 percentage points. So actually higher than for the full year, and that is, again, driven by the external factors as well as a lower percentage of Service on the overall activity in Q4. EBIT decreased by 0.1%, mainly driven again by increased leverage on SG&A., and that is, to a certain extent, offsetting the lower gross margin that we present here. SG&A cost continues well under control. On a 12 months rolling, you have the 6.2%. So a slight increase compared to -- in absolute number compared to Q4 of last year to cater for the higher activity level. You see an increase of depreciations and amortization, as we have spoken about before, and that is primarily due to the introduction of new products. Altogether, well under control and very slightly increased compared to the overall activity level that we have presented. Service business continues to grow. Compared to last year, you see a 12% increase, and that, again, is driven by higher activity levels. So for the full year '19, we delivered 25.8% compared to 25.2% in '18. The quarter is also strong. EBIT is EUR 110 million at a margin of 20.8%. MHI Vestas. You can also see here, full year activity level is -- in '19 is higher compared to '18. Net profit is down to EUR 6 million. Our share of those EUR 6 million is EUR 3 million. So revenue is up 29%. So also not only in the onshore space but also in the offshore space, high activity level. EBIT performance improved year-over-year, but that was more than offset by additional nonoperational costs. Change in net working capital is negatively impacted by increased level of inventory to cater for the high activity level, so obviously an underlying positive development in the overall business. The down payments as well as milestone payments partly offset that. Payables is obviously a consequence of the overall high activity level that we have presented. Cash flow from operating activities before change in the net working capital for the full year '19, higher than '18. So good performance from an operating point of view. And we see we are negatively impacted by change in net working capital and also higher investments, they are plus EUR 700 million. And our net interest-bearing position continues at a high level of EUR 2.5 billion. Ultimately, we have a EUR 94 million positive cash flow in '19. Total investment methodology is unchanged. We continue to invest in capitalized R&D as well as primarily molds, I would say. And here, this is a good reflection of the high activity level we have in the company. So we are investing EUR 729 million in 2019 to cater for the really strong demand that we see in the market right now. Warranty provision and lost production factor. You can see here in Q4 '19, we are consuming less than what we provide for. The warranty provisions made corresponds to 2.5% of revenue in Q4 '19 and is a result of the steep delivery ramp-up and the acceleration of new product introduction. The LPF continues at a low level. Capital structure. You can see that net debt-to-EBITDA is well below threshold at 1.6% negative. The solvency ratio is 23.3% here in Q4 of '19, and the lower level is primarily driven by the increase in total assets. By that, Henrik.

Thank you. It's also the time of the year when we -- when we finish 2019, we also just do at least a short recap of where are we in terms of our strategy, what do we see as underlying fundamentals and also give you a bit more of where do we see the market outlook going in both short and long term. So when we, first of all, look for the growth outlook for the sector, I think it is very positive that when we look from where we are today and towards 2035, we see a general part which is called the electrification, which, of course, is a very strong underlying. At the same time, the demand and consumption in the global world is still forecasted to pick up. So we are looking into an electricity consumption or demand at least that is expected to grow with somewhere around 40% towards 2035. As you will also appreciate, there will be some variables in the forecast of when we then look at the energy sources provided and trying to help with that increase in demand. But as you will see here from us, we appreciate renewable will take a fairly large proportion of that increase in demand. I think here, it's very positive. It's also very positive that the forecast numbers is underlined by also what we see as the underlying megatrends in society generally of the focus on renewable. But last but not least, this time, we also see an enormous capital allocation. So in '19, '20, we had a capital allocation to the industry of somewhere around $105 billion, $107 billion, and that is actually there to be expected and forecasted to grow to the renewable part of wind industry of around $200 billion when we get to 2035. And that is actually what we are talking about when we look in the very long horizon for wind. If we then go to what we have said here, these are our 3 strategic areas for both growth and investment and also our input. When we look at the onshore wind, clearly, the onshore wind, we have a leadership, and we have a leadership both from size, technology and solution in there. And what we have seen, of course, is in '19 that we ended up having new installations of somewhere around 35 gigawatt if we exclude China. And that we see continuing. So when we look towards 2023, then we also see that that is continuing to be predicted somewhere around the same high level. So there is an underlying compounded average growth rate of 1% to 3% in this outlook from the external. When we look at our Service business, it's a business we keep investing in and it's also a business we keep scaling. It makes us very proud to see the progress the Service business is making quarter-on-quarter and year-on-year. And as you can see here, underlying from an installed fleet, expected to grow from somewhere around 400 gigawatt in 2019 to around 550 gigawatt in 2023. So an underlying continuing growth in these markets, and that leaves with a growth rate somewhere around 8% to 10%. If we then come to the offshore, we've said here, we wanted to remain one of the top players in the offshore wind industry. It is, as you would appreciate, a younger market. It has high-growth predictions. But we also see it becomes more lumpy because certain countries come and do a tender and then maybe pull out and work with the permitting and the projects for some years. So I think here, we will see that the underlying growth is definitely there, predicted to be from around 7 gigawatt in new installations in '19 towards 11 gigawatt in '23. So underlying a 10% to 15% increase in new installations when we look ahead, which, of course, also will support the offshore interest of Vestas and of course, [ IMWA ] in that sense. Next thing is, and for those of you who have seen this a number of times, and I just want to reiterate here, we have -- absolutely, we stick with our strategic framework. Why? Because it works. It supports us on our daily focus. And I'm very pleased to see that every one of our employees around the world know our focus areas and also how we work with this strategy. So expect a lot more of the same in the years to come. So overall, yes, we want to remain the global leader in the sustainable energy solutions, which you have seen examples of on a quarterly basis. Yes, we want to lead the global leader in the wind power plant solution, which I think we do with a certain evidence and credibility. And then, of course, we want to be and remain the global leader in the Service solution, which I also think you will agree with that we are absolutely taking a leadership there. When it then comes to our financial medium targets, stays the same. We are fully committed to grow faster than -- relatively faster than the market. Yes, we are aiming at best-in-class EBIT margin, which means minimum 10%. And we will aim for free positive cash flow every year, and we also aim for a return on capital employed by minimum 20%. And as you saw, it was 19.7% in '19. And then when we get to something that also ties us more and more together, it is also the sustainability in everything we do. And we have to be honest here in saying great to have one of the most sustainable solutions in the world, but it's also how do we arrive at that most sustainable solution and how is our journey towards what we now have set out to be a fairly ambitious targets to become a fully carbon-neutral company in 2030 without any offset. We also want to work very diligently with how we then recycle and how we get around the 0 waste of our wind turbines by 2040. Honestly speaking, we don't have all the solutions there. So there, we're also very much inviting others to partner with us to find some of those solutions. When it then comes to our lower part, our employees here, we absolutely want to be the company, the employer that ties our employees together. So we want to have the safest, most inclusive and also socially responsible workplace in our industry. That includes, of course, a higher proportion of women in leading positions and also how we work constantly on our safety records in what becomes a more and more busy execution environment and also a more and more diverse path to execute on-site level. Last but not least, the square is here. It's -- I will say, for some, probably an open invitation to come to us and also work in a partnership of how to develop and make stronger partnerships to actually develop this together. You have seen it. We are mentioning it. And most recently, a couple of weeks ago, when we announced the partnership with DSV, part of it is also driving that sustainability agenda together as global partners. So with that, one thing outstanding, and that is our outlook for 2020. We aim for revenue here between EUR 14 billion to EUR 15 billion, so up materially from 2019. We expect Services to grow approx. 7%, from what we can see in the order intake. And we have an EBIT margin here of 7% to 9% for the year. And we have a service margin that is expected to be around 25%, the level of this year as well. And then we have total investments of EUR 700 million, which, of course, is very close to what we also saw from 2019 of EUR 729 million. So I think that is the outlook for '20. And with that, I will just hand over to the operator and also open up for questions from the audience.

[Operator Instructions] And our first question comes from the line of Kristian Johansen of Danske Bank.

So my first question is around your -- the lower end of your 2020 guidance and then how to get from 2019 to that. But firstly, you made bonus provisions of EUR 107 million in 2019. How much of that was booked in Q4?

Thank you, Kristian. If we start with the bonus, I think what we do is, obviously, we book when we see adequate as we have done previously. But it's also fair to assume that most of the activity took place in the latter part of the year. So that is reflected also in the provision for bonus. And when it comes to the guidance, we're doing different scenarios as we always do. So this -- the 7% to 9% is representing those different scenarios. But bear in mind that we don't -- we have higher depreciation in 2020. We have no special projects in 2020. And also, as we're growing very fast on the turbine side, the percentage of revenue coming from Service is less. And if we also assume that we have a warranty provision at the same level as in 2019 Q4 that will also have a negative impact. And then you have the regular of wind -- the overall weather conditions. So all of that is represented in the 7% to 9%.

Okay. Then if you do another -- at the bottom of your guidance, so the EUR 14 billion and then 7% margin, will that trigger a bonus payment of similar size to what you booked 2019?

No. I mean we -- we're not disclosing the absolute levels of the bonus, but obviously, 7% is the lower end. And again, we're not striving for the lower end, we're striving as best as we can. But there will also be external factors that will potentially have an impact on the overall performance.

Okay. So it is fair to assume that the bonus level would be substantially lower?

That's right.

Yes, absolutely.

Okay. Then just the last one on this. You did not mention anything about the impact from trade tariff supply chain and so on. So what is your assumption here in your guidance and especially towards the lower end? Is that an unchanged impact? Is it a further headwind? How should we view that?

No, I think it is fair to assume we are at the same level as we were in '19. So it's fair to assume the 1.5% in all scenarios. Obviously, with the good order intake that we've seen in '19 is well reflected in the overall guidance for the company. So we have a very high activity level. We have a good set of order intake. So a lot of the planning has already taken place. And now any changes, as we've said before, to that, obviously, have a negative impact. So visibility is good, but it's also a very, very high activity level that we're planning for.

Okay. And then just the last question for me then...

That was a little bit more than 2, Kristian, if I wouldn't be...

Can you just quantify exactly how much depreciations are going to increase?

I'd say around EUR 100 million increase in 2020.

Our next question comes from the line of Claus Almer of Nordea.

Also a few questions from my side. Coming back to the guidance for 2020, when I'm calculating the incremental EBIT margin excluding the divestment of wind farms, the mid-range is around 7% and high end is close to 8%. So not a very high level, at least. Is that really the most realistic scenario, which you are delivering on your revenue guidance?

Well, third question, Claus, I mean we have now guided for 7% to 9%. There's different impact that I highlighted before. And apart from those, you have, I mean, the normal weather conditions. But you -- bear in mind also that we have a continuous steep growth in activity level and we don't see the same leverage as we are outsourcing more of the activities, and we are also investing quite heavily to accommodate the overall revenue target for 2020.

Well, I guess, is it fair to assume that the quality of the backlog in 2020 is special than it was in 2019?

Yes. Yes. If you were referring to pricing level here, you have the 0.76 is probably a fair assumption. But it's also -- we have a very high activity level, very good visibility, but that also means that we have planned for everything. And to be realistic, there could -- different scenarios could pan out, and that is reflected again in the 7% to 9%. And then as a backtrack earlier, we have higher depreciations that will have an impact on the EBIT. We have no special projects as you're referring to. And there is less percentage stemming from Service revenue. And also, you could assume that we would have a 2.5% warranty provision or at the same level as Q4. Those -- all of those have a negative start from the beginning. But as I said, we're obviously striving to do better, and that's why we think it's adequate to guide for 7% to 9%.

Sure. But you're using the normal way, so you are aiming at least for the high end of the guidance range. That's at least what you communicated...

That's why we put it up, Claus. So obviously...

Claus, there's 330 days as of today to last day of December, and we will do nothing else than strive for that. So that's how we work, but we also want to see that we use the tool in the toolbox to get there before we're saying it.

Obviously. Order intake 2020, I know you don't guide on this. Would your order intake be restricted by your leg of capacity for 2020 and client might be postponing when they are paying prepayments until 2021? Or how should we think about order announcements?

I think in terms of order announcement, there, we will probably say it's a little early in the year. And I think we're also, here, saying we are scaling and we have been scaling both in '19 and will be further scaling in '20 for activity that goes up. And where we can support further order intake or where we have a scarcity of that, then, of course, we will look at that, Claus. So we will continue doing that. And then we will have to see certain markets has better availability. There can be localization restrictions, which, of course, we are better and better dealing with.

Our next question comes from the line of Casper Blom of ABG Sundal Collier.

Henrik, as you mentioned, you still have a 10% EBIT margin target for the longer term, and you're now guiding 7% to 9% in what looks to be an extremely busy year. What is it that will take you from 7% to 9% up to at least 10% in the years to come?

That's -- I mean it's sort of not a surprise. We are working super diligently with our supply chain. And then what you would appreciate here when we have said EUR 14 billion to EUR 15 billion in what I think is quite a narrow range for our top line in a full year like this that also means we have a fairly good visibility of how that year would sit in terms of turnover. That then leaves us an enormous execution and also an upside in turning some of the tools internally and seeing how can we then execute better. That means discipline on the projects, trying to become better on controlling that, and therefore, getting better execution power in the very last site where we are putting it up. And then ultimately, you will also see some of the initiatives we are doing now where we are putting global partnerships in place to actually drive some of those costs and scale out that will, overall, over time, support that we will aim for hitting 10%. As I said this morning to somebody, let's also just take one step back, because when you came out of 2018, you had EUR 10 billion in turnover, and you came out of a fairly busy year at that point. If we exit this year with EUR 15 billion, we are 50% up. And when we then go in and we also see that, then, this year, we would have then increased another 23%. But if we hit 9% in EBIT, you would have increased your EBIT margin with 35 in absolute terms. So I think we just need to sometimes also don't get so rushed into this that this has happened, 50% of inactivity in only 24 months in a global organization like Vestas, where you will also appreciate our assets are not easy just to get around and transport in the world. So I think we're just saying here, we're not putting a quarter, we're not putting a year on it, but rest assured that we are finding the tools to do that.

But is it fair to think about it in a way that right now you are so busy that internal initiatives, optimization, cost-out, et cetera, is maybe a little bit difficult to do and that this is more sort of a matter for '21 and '22...

No, no, no.

When you sort of have better grip on the very high activity levels?

No. I mean what you have seen here is, and I have to give credit to 25,500 employees and colleagues of mine, we have just executed more or less flawless on a Q4 in Vestas' terminology. So we actually come out of a Q4 highest activity ever. There are some of those practices we absolutely need to take with us for the full year of 2020 and then it will look better. So I think there are learnings coming all over. And I think here, we haven't come out this morning and said we have issues or whatever. We have actually just come out and said we did what we promised and also expected to in Q4. That's the spirit we need to build on in the year we are in to get us to the next level.

Number two question...

That was a sneaky one, number two question then. Okay.

The outbreak of coronavirus in China, I suppose, is affecting your supply chain quite significantly. I know no one knows exactly where this ends. But could you give some sort of insight to your sensitivity? What do you do if people cannot return to work shortly and if it's not possible to transfer things into China and also out of China?

Yes. I think it's fair here, we have -- our thoughts right now are with nearly 3,000 colleagues of ours in China. And personally, I can say I was probably one of the last ones traveling out because I actually visited China in the second week of January. So for us to see out there right now, we are thinking how can we restart and when it's safe to restart. And there, we are doing that on a daily basis because it's also how to review that. So good company and also a team practice here in Vestas is every day, we have that conversation and update. When we then look at it, it's clear that China will then have to restart from something they would have to restart anyway because it was just after Chinese New Year. So the country as such are normally good in restarting after some periods like that. Having said that, we are not the one that can decide on when we start in China because the whole supply chain and the country has to decide to restart. So far, it seems that there are plans to start slowly and restarting in a week's time. If that's the case, then we will see how the supply chain, and we mean the full supply chain, is there. We haven't made any scenarios because we cannot do our own scenario based on our own thinking here. We all appreciate if China is remaining closed for weeks or even worse, months, then I think it is the whole world that will have a pandemic force majeure of somehow. And then, of course, we will have to deal with as any other in the world of this within supply chain. Because full supply chain is affected by commodities and components, so transport is not the highest worry right now.

Our next question comes from the line of Dan Togo of Carnegie.

Maybe a view on the ASP going into 2020. You are basically on a flat to slightly increasing trend at the moment. And we assume your peers are struggling with profitability. Any change in behavior in how they price themselves in the market and how we should view 2020 ASP-wise? That's the first question.

I would say that, yes, we ended the year at EUR 0.79. And as said earlier, the average in the order backlog is EUR 0.76. I would say still a very competitive market. And obviously, we're still expecting a stable price level. And how the market overall is acting, it's hard to tell. I think we're in a good position. We have a strong order intake. We've proven that we can deliver under tough circumstances or a lot of changes in the overall market. So we don't have any sort of anticipation that, that would be a quick change. If our competition also get into a different view on the pricing, that's obviously positive for us if they -- and what I said, change is increasing the average prices. That's also what we hear in their communication. But I mean our focus is obviously what can we deliver to our customers. And so far, our strategy and our view has turned out very well for us.

And then just on the Service business, are there any things unusual, one-offs, weather-related in Q4 that we should be aware of in this business? And then maybe an elaboration on the lower growth, at least compared to '19, 7% you are guiding for. And this slowdown in growth, should that normally have a positive impact on the EBIT margin that you guide down slightly in '20?

I think let's -- one thing first. I think when we look at the Service business when you look at Q4, it is fairly -- as Marika alluded to earlier here, we probably did provide as the year progressed and it's clear that our execution was better in the end of the year. And therefore, Service have had -- they have a proportion of much larger part of our colleagues, investors on their payroll. And therefore, the bonus provision was much more for them in their top line and their P&L in Q4. So that's the main reason why you saw a dip in the EBIT in the service business. Having said that, when you then look into 2020, there are a couple of things here. Normally, when you get better and better top line, you will also see an increased EBIT. And that's generally how we see our Service business developing. But in the Service business here, don't forget, there will be years that are slightly different from a growth perspective. We are saying 7%, approximately 7% here. But you also now would appreciate a lot of our contracts get much longer. That also gives us a better visibility but not necessarily as high turnover in year 1. So there are a few changes. There are, just what I say, you would like to have everything at the same time, but you can't. Now we are getting an enormous extension of the maturity of the Service contracts, which is super supportive for the business in the long run. So I think that's the main reason. But we don't see any other material reasons for that in '20.

Our next question comes from the line of Akash Gupta of JPMorgan.

My first question is a follow-up on China situation. So first of all, to be clear, your guidance of 7% to 9% doesn't include any scenario for this outbreak. And then also, if you can say what sort of flexibility do you have in manufacturing. So let's say if we have 2 weeks of additional shutdown, is it fair to say that would be something that is manageable? And then let's say if it is more than 2 weeks, then it could be started impacting the P&L?

I can't give you weeks, sort of this is where you just need to start worrying. I think it is worrying as much as when you have a China, then it does affect the whole global world of supply chain. Because it's right from the commodity part to the components part to, for us, also very, very high level of assets that we transport. So that is going to hurt us as much as it's going to hurt the rest of the world in supply chain. I think here, we will compensate as much as we can. We do -- we put those initiatives in place. But then we also still rely on when it opens again, then we will see how much we can catch up by doing in China. But you will also appreciate, there are simply part of our assets that you can't rush or stress more. A blade has to have the time for curing as the blade has to cure. So therefore, that's just the nature of the business. We are not having in our guidance anything for a China shutdown for much more than potentially what is already now happening. So therefore, we'll have to deal with China when it comes and if it comes differently to what is in the plan. As of yesterday, schedule is that they will start slowly to have supply chain working again as of next week. That's what we sit and deal with right now.

Okay. And then on cash flow, I mean 2019's big outflow from working capital as you're preparing for a busy 2020. Can you indicate what do we expect for 2020 in terms of working capital, especially given the U.S. situation on orders potentially rolling over in 2020?

I mean, as you know, we're not sort of guiding on the overall working capital. But it's fair to assume with the activity level that we have right now, we will continue to use the balance sheet to manage that situation. And then obviously, depending on the order intake for this year, I think that's something we probably have to come back to. But I don't see any immediate changes to the level as we speak.

And finally, on this medium-term more than 10% margin target, which you are reiterating today, do you need any minimum level of revenues to hit the target that we should be aware of?

You can't make that linear programming. So I think it's more how do we get our improvement and our scale and therefore also to some extent, our scale advantages and therefore cost-out of what we have as a top line. You can't make that assumption.

Our next question comes from the line of Sean McLoughlin of HSBC.

Firstly, on offshore, I want to understand what's driving the regional expected profitability and what you expect in 2020.