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

Good morning and welcome to this presentation for our full year 2020. I think it is timely to say a proper thank you to all our stakeholders for 2020. It's been challenging, but also rewarding for our future journey and not least also for the growth of renewables. So with that, a warm welcome to our presentation here. As it is the full year, we will also do a strategy update as part of our presentation. And I will now have forward-looking here. So for the key highlights, if we look at the key highlights for the year, we met our full year revised guidance that we met on all parameters by our 2020 results. We delivered more than 17 gigawatts in a -- what was a very challenging COVID-19 environment. That's up 34% compared to 2019, and it is up 59% compared to 2018. We spoke earlier about evidence, and this, I think, is basically an evidence to ourselves of how we have done this year. EBIT margin before special items of 5.1%, clearly impacted by the higher warranty provision earlier in the year and also the execution challenges due to COVID-19. We had a 10% revenue growth in service and a 28% EBIT margin in service. So another stellar performance from the service business. Probably really important here, we had a strong safety performance in the year. We had total recordable injury rate down 15%. We'll talk more about it, but it's a very important one in a year where we scaled to so much higher activity. And then lastly here, we had a 33% reduction in our own CO2 emissions for the year. And as stated here, we continue being a leader of displacing CO2 emissions because we displaced 186 million from -- in 2020 from our installed base. When we then also look at 2020, it was also a fairly busy year in terms of strategy, execution and looking ahead. We acquired full control of the offshore wind activities. And as of today, you will also see, and we'll talk more about that, we have now launched a new platform to also look ahead into the offshore activities. We expanded, and we have expanded our development activities, and we formed the strategic partnership with Copenhagen Infrastructure Partners announced in December and closed here in February 2021. We are clearly on track with our sustainability strategy. It works, both as a strategy and also on the operational level. We'll talk a lot more about that. And then again, here, thank you to the finance and treasury team, we had the assignment of a Baa1 rating from Moody's. Again, it's just an illustration of how Marika and the rest of the teamwork with their prudent thinking of how also to look ahead to have the finance supporting our strategy journey ahead. When we then look into where we are in Q4. This chart you have seen a number of times. I think it is fair saying here we have shown the evidence of how to perform. We can also say we confidently came through 2020. We did that without taking any state aid at any point. We also here have performed, first of all, with the health and safety of our colleagues as a top priority. But secondly, business continuity throughout the whole year. It is fair saying that has stood us in good shape. And when we look at it right now, we are probably at the max of the lockdowns we have been. I think in most countries we hear about, we are having the furthest and the strongest strict lockdowns we have seen. It's in Europe, Americas and India, where we still see some of those impacts. Generally, thanks to all our partners and suppliers, we are generally running. Even though, we also see and accept that transport and logistics right now are seeing certain bottlenecks, and we thank our partners for that understanding and also making sure that we have the priority in dealing with that. Then I will say also here, 2020 was -- 17 gigawatt delivered to customers in 2020. That's up 34% compared to 2019, but it is a testament of what it meant throughout the year of same business continuity. So that couldn't be done without now 29,400 colleagues of ours, including the offshore. This has really been one of the evidence to the year. In terms of how we did in terms of order intake in fourth quarter, we had an order intake of 5.6 gigawatt in order intake in Q4. Average selling price was EUR 0.71 million. And as you can see, it's up 25% compared to Q4 last year. Especially U.S., Brazil, Australia and Colombia were large contributors to the Q4 result. But again, there, very pleasing for us to see. When we look at the ASP, it ended at EUR 0.71 million for Q4. That means it remains stable considering what we know in terms of both geography and scope, and of course, also the individual offerings off it. Without the FX, the full year ASP would have been EUR 0.77 million. So we are satisfied with that. That also leads to that when we look at the all time -- or we look at the backlog, we have an all-time high order backlog. And of course, there's 2 things to say about that. First of all, the positive development of the ongoing activities from onshore and also the inclusion of offshore. So wind turbines now, EUR 19 billion in backlog. Onshore EUR 15 billion, offshore EUR 4 billion. So in total, up EUR 3 billion compared to year-end '19. In terms of service, incredibly good year in terms of this. So 24 -- shy of EUR 24 billion in backlog. Onshore, a bit more than EUR 20 billion, and offshore now comes in with EUR 3.4 billion in offshore. So that's up EUR 6.1 billion compared to year-end 2019. When we talk about the Power Solution, then Power Solution had a really good year. What we see here also, I think the Power Solution, again, here from a highlight point of view, we have had a second half of the year where basically EU, South Korea, Japan, China, and now also the new administration from the U.S. have changed the -- so there, we have seen all those countries making changes to how they look at carbon and carbon neutrality. Some of the countries putting up targets for 2050, and other countries putting up targets for 2060, and I think it is fair saying we have seen a number of initiatives from the new administration in the U.S. that only sort of talks and support the same underlying macro trend that is: let's do the transition towards renewable energy in the decades to come. When we then look at it, we have had increasing deliveries in Americas, not surprisingly with the PTC end in 2020 and also in Asia Pacific. So strong orders secured across U.S., Brazil, China and Poland. So when you look at the numbers below, really, really encouraging year from all our regional setup and a thanks to all of the regions for doing so. Then when we come to the service. I mean 2020 was the year where we passed 100-gigawatt milestone, and we're also here looking at how to run 1 service business including the offshore activities looking forward. We also now look after 113 gigawatt on onshore. That means in a year where we passed 100 gigawatt, we're already now at 113 gigawatts as such. The 2020 highlights goes without saying we are now running as one team. We are getting colleagues to sit as one team and also across locations. That gives us a good start to leverage the global supply chain and also the scalability not only on onshore but also now on offshore and the best practices in between. In 2020, we had more than 3 gigawatt of wind turbines that were added to the multi-brand operations of us. And that's now spanning across more than 24 countries and servicing 7 different turbine brands. We also had a new market entry, it was in Colombia, with more than 500 megawatt of service agreements plus 12 years in duration. I think most impressively below, you will see the growth is across all the regions, and we are really here positive and also thankful to everyone that are keep working so diligently through this 2020. When we look at the offshore, and I think we will talk more about the offshore later on also as part of the strategy review. But I will just say here, as the key highlight, we have now welcomed more than 3,000 employees, new colleagues, some of them even former colleagues, into how to be one team Vestas. We are integrating onshore and offshore. It's started. We have the operating model and the new organization being announced 1st of February, and we are working diligently through that. That means, in 2021, we will be settling in, but we have done everything possible to make some of the quick integration we can do to make the team execute on what seems to be a very busy year looking ahead. We also completed the installation of Borssele in the Netherlands in 2020. And below, you can see the projects we have in progress in Q4 2020. And with that, I will hand over to Marika.

Thank you, Henrik. So if we have a look at the income statement for the full year, and I think it's pretty clear what Henrik has said, we have had record high activity levels. So obviously impacting the revenue line positively despite a COVID environment. So we saw a positive change of 22%. Gross margin is down 4.1 percentage points and primarily impacted by the increased warranty provision that you saw in Q2. But also the logistical challenges and the supply chain bottlenecks due to the high activity level, and that has just been further amplified by the COVID-19. EBIT margin, for obvious reasons, also took a step down due to the lower gross profit and also higher depreciations. SG&A, I will comment on later on, obviously, having a positive development, in particular, due to the COVID situation. Income from investments in JVs and associates is primarily driven by the revaluation of the 50% ownership in MHI Vestas. And that is resulting in a positive contribution and obviously, a positive impact on the net profit. If we have a look at the Q4, still very busy quarter here in Q4. But as you can see, equally busy last year. So a slight decrease in the overall -- on the overall revenue line here in Q4 of '20. I would say, overall, a good performance in the quarter, but the gross margins here as well took a step down, and that is driven also by the higher warranty provision and COVID-19-related challenges. We saw actually a step-up in terms of COVID-related cost in Q4. EBIT, as a consequence, this decreased slightly here in the quarter. And obviously, the same reasoning due to lower gross margins and also higher depreciations. SG&A cost, as you can see here, well under control. And if you look at the activity level of the company, which we are measuring, we are now at 5.3 percentage points. The absolute number increase has been to cater for the higher activity level. The depreciation and amortization increased EUR 84 million in '20 compared to '19, and that is primarily due to the new -- the introduction of new products that we have been referring to earlier. Relative, as I said earlier, we are now at 5.3%, so really good performance on the SG&A side. Service business. Really good service performance, also said by Henrik. You see that the revenue increased compared to '19 by 10%. Obviously, driven by the higher activity level and also very good margin for the full year, 27.6%, approaching 28%. And you see a corresponding margin here in Q4 of '20. If we have a look at the MHI Vestas Offshore, I will say, pretty stable activity level year-over-year, and we delivered revenue of close to EUR 1.4 billion, somewhat down, but pretty slightly. Net loss of EUR 92 million, and that is driven by the changes in our assessment of the need of warranty provision. Without the warranty provision, you would see an EBIT margin of 4% that we have been indicating. That gives an absolute number, a net profit of EUR 45 million. Changes in net working capital. It continues to be negative. And here, you see that the increased level of inventory is primarily driven by offshore, but also catering for our own activity level anticipated in '21. Down in milestone payments to a certain extent offset the increase in inventory but not to the full extent. Cash flow. You see free cash flow, EUR 84 million, more or less in line with '19 of EUR 94 million. And you can see here that cash flow from operating activities is increasing. So very good, but also the change in net working capital, obviously, impacting negatively on the free cash flow. Net interest-bearing position is solid, around the EUR 2 billion range. And you see the impact from MVOW's net debt of EUR 198 million. Total investments. We are within the range that we have guided for. So we're slightly down to EUR 659 million. And the main reason for a lower investment in '20 is the optimization of the product portfolio that took place at the beginning of the year. And the acquisition of MHI's 50% share in MVOW were paid by issuing 2.5% new Vestas shares to MHI. Warranty provision and loss production factor, you see here that we consume less than what we provide for. But obviously also mirroring what we expect ahead of us. Provision made in '21 is expected around the 3% revenue. The loss production factor has gone up during '20, and that is as a consequence of the extraordinary repair and upgrade level, especially in Q2. Capital structure. Net debt-to-EBITDA well below threshold. And our liquidity position remains strong, with close to EUR 2 billion cash at hand. We also were assigned, as Henrik was saying, a Baa1 credit rating from Moody's, obviously, to further strengthening our position towards the banks. A dividend of DKK 8.45 per share is proposed, and that would equal a payout ratio on the maximum side. That is 30%. By that, Henrik.

Thank you so much, Marika. And we will now do a few overview and strategy slides just to put where we are by end of 2020 and also look a little bit further ahead. I think it's fair saying 2020 was a year of evidence. It was a year of evidence towards our customers. It was also a year of evidence to the wider society and countries we operate in. It was clearly a statement of that we can be trusted on the challenging conditions, and we can also be trusted as one of the most competitive sources of energy, both as today and also looking ahead. I just wanted to share with you on the left side that actually, in 2000, we were 12 gigawatt of installed wind capacity. Today, that has come to 700 -- more than 700 gigawatt of wind and, of course, more than 70% of the capacity is installed in the last decade. Also, to the right, it comes actually for a reason. Because if you look at it, this is sort of the levelized cost of energy ranges. There are ranges depending on where you are in the world, and this is the late '20 update. But as you can see, when we look at the onshore wind and we also look at the renewables, generally, it is favorable comparing to any fossil-based electricity source when we look at levelized cost of energy. I also think it's fair saying here that when we look at the levelized cost of energy of onshore wind, it has come down with around 2/3 of the cost over the last decade. Due to technology, due to the scalability and also due to that we are closer to where it needs to be put up when we enter the projects with our customers. Then where are we and what do we have ahead of us? And I think there's still significant decarbonization to be done. I would probably even say -- some will say, probably the best is still to come. Because if we look at it, the energy consumption for 2019, when we look at the wind, it accounts for 70% of the electricity consumption, and we look at the overall energy sort of generation across the world, we are still only 1%. That means we have a lot to go. So we have come a long way, but we have even further to go. And we believe very much, not surprising when you look to the right side here. We think -- we talk well about 3 pillars of where it's happening. We see right now that it's an increasing deployment of renewable energy. It's in the replace fossil around industry, it's in heating and it's in transport. We all see, feel that whenever we look at, for instance, new things to either heating or transporting or in our own factories. When we also look at it, clearly, we are to replace fossil power plants. That goes for fossil, it goes for coal across -- and it's happening. Those 2 pillars are happening, and it's happening with increasing speed and increasing commitment from countries and customers across the world. Thirdly, I will say here, we are talking about something that's to come. We see that there are new industrial solutions being talked about. We talk about the Power 2X. Power 2X and the hydrogen are out there and it's coming. But still also a lot of the projects are here to develop that scalability and also that lower levelized cost of energy when we look towards potentially the next decade as well. That is also a very good set of track to talk about what have we done when it comes to our sustainability? We launched our sustainability strategy in 2020 as the 1st of January, and we had the strapline saying sustainability in everything we do. We have authorized that and we have made it executionable across our operations in the world. We have 4 buckets, big buckets of what we operate in. So we want to be carbon neutral by 2030. That means we look at all our carbon footprint across all our own operations and also how we run our activities across the world. Circularity. So when we look at the wind turbine, how can we get to a 0-waste wind turbine by 2040? We talked about it before. It gives a little sense of nervousness when you announce a target like that because it involves technologies we don't have readily at hand. You've seen in the last quarter of 2020, we have included and we have embarked in a number of those projects, various places in the world, to actually also see how we can recirculate and reuse the blades as part of it. This is about how we decarbonize our components in the blades and that, of course, is a journey ahead. When we look at our employees, our colleagues around the world, we aspire to have the safest, most inclusive and also most socially responsible company environment to work in. That is an aspiration and drives us every day. And I think we don't benchmark up against industry, we benchmark across all industries, and we like to compare us with that. And last but not least, in the energy transition, we want to take part of that, but we also say some of those initiatives will come as we also launched the Vestas Venture in 2020. Because there, we will invest in some of the early, probably also leading technologies that are coming and how can that drive the energy transition further on. By the way, in here, you will also see a number of our partners working closely with us to develop some of those new concepts to be worked with in the next decade to come. I think when you have 2 slides and you try to say that much about how much progress we have made, I think the most important we can say to everyone listening in here. This is how Vestas moves. This is how we also work and execute on our long-term ambitions. It is good evidence of how it is when you walk the talk. So the carbon footprint for 2019, we've reduced it with 33%. That overall comes in combination with that we displaced 186 million tonnes of CO2 every year from the installed fleet we had by end of 2020. That is an amazing number and probably a number that can't be recorded from any other company. We also, therefore, invite all our key suppliers and partners to start measuring, taking part and also accelerate that journey ahead together with us. When we look at the other side, I will say, one of the very important one was the recordable injury rate. It is now at an all-time low of 3.3. 3.3 is still too much, but 3.3 and at 15% reduction from '19 to '20 onboarding so many new colleagues and scaling up the activities in such a dramatic way, I just wanted to say thank you for everyone to take good part of each other, but it's not done yet. When we look at the diversity and inclusion, I think it's fair saying we are faced with the same challenges. How do we do more in diversity? And how do we become more inclusive? We're working on that one, and we strongly believe that part of it is already happening when you onboard and recruit. And at the same time, we invest in how are we doing when we are in Vestas as a team Vestas. I will also say on the other side here, we are mentioning that we have the science-based targets approved. This is actually something that is a vital and a material step in our journey ahead. Here, you talk about how you're going to do it, and we look forward to follow that in the years to come. And as you can hear, we work diligently with it, and it's an important first step. There are so many more examples of that. So if I could just ask you as a follower and a reader to have the time, download the sustainability report as a separate document. It's a small 50 pages. It comes as a good readable PDF file. So do that because that gives you a lot more tangible examples of how we work also on the communities around in the world. So let me just then say, and you're not surprised by this, we have 3 big legs of how we run our strategy and the strategy progress. Onshore, very much still believe in that. We have seen the onshore. We have seen countries, both existing countries but also new countries, coming in and supporting further interest into the onshore market. We believe that, that will trigger new installations, so still have a positive compounded average growth rate of 1% to 3% in the period here towards 2025. When we look at the service, it goes without saying we have now 113 gigawatt under in the onshore and another 4 gigawatt in offshore. So we have more to do in service in general. We run, we have a global scale, and we invest in a team, and we now have well in excess of 10,000 engineers that are going around. We believe on the growth, we believe on the growth together with our customers, and see a compounded average growth rate of 8% to 10% when we look towards 2025. Then, of course, not surprisingly, we are looking at offshore. And as you would expect us to now, we are a team one Vestas. And this is all about now to get offshore as included in our operations, as we have had with the onshore in a very long time to that. We also see offshore. And I mean, you have some of the forecast, and I won't challenge not at the forecast, but some talk about 30 gigawatt annually in 2030, others will talk about 25. Whatever the number is, it is quite a high compounded average growth rate. And I think whatever we see from trends, from announcements in countries and areas across the world, it seems we are all leaning both towards onshore, but definitely also now to have a much accelerated journey ahead in offshore. That, of course, is a strong one because we then have, let's say, [ 41 ] from our now fully integrated activities from the offshore, which we will work in and will comment more on. One of the conditions to be an actual player and a leading player in offshore comes, of course, on this slide. We know and we've talked about it, we said in 29th of October that we were going to do an imminent announcement on the technology. So imminent means 10th of February. So today, we have announced that we will introduce the V236, 15-megawatt turbine. And for us, that also underlines both our commitment to return full to the offshore wind. It also remind all our customers about our commitment and also well as an active player and partner in the coming offshore tenders, and also how we build activities and the access to renewable offshore energy across the world. This turbine, of course, based on all our modular approaches both from the onshore, but also from the existing offshore. We know that because the technology has been very much driven and also the experience has come through several decades of our design. When we look at it, it is clear that we are going to take best advantage of that. Not surprisingly in here, some will say, we have evaluated throughout this time what was most for us and the attractiveness of the various things. So this one to avoid all the questions that otherwise will come, I'll just say upfront, it does include a gearbox and not a direct drive. So at least -- please, at least take that question away when we come to the Q&A. I think also here, it is leaning into a technology now that, of course, we see that there is a higher technology, but there is also now things to be considered when you talk about the things that are 236, 15 megawatts. That also comes with weight. It has also how do we build it, how do we run it and how do we operate that? So weight becomes an important one for customers. We work closely with customers and certain partners on this, and I think right now, the best thing to say is that, that will go into the competitive landscape as of today and probably has been in there for a little bit of time with some of our closest customers to be discussed with that. Just 1 little interesting thing. If we compare to our existing V174, 9.5 megawatt, just the swept area of this new turbine is 84% higher. So I just want to there illustrate that this is going to give a completely different calculation and also performance for the customers we're going to talk to in some of the tenders. This is also the place where I have to just extend a big thank you. Thank you to the technology and development team inside Vestas. I'm pretty much aware of that we in Vestas by announcing it 29th of October probably increased a little bit the pressure and performance expectations on how we can do the technology side of this. It hasn't been developed since 29th of October. So it has been an ongoing one. But to everyone here today, congratulations with that. This is part of your day as well. So enjoy the day, and I'm sure we will have some of the very, very exciting discussions with customers going forward. Well, that also means that was the introduction of a turbine and technology. Then I will also just here, do a little bit of where are we with the integration of offshore. It is fair saying we have worked very, very focused and very concentrated since we got the final completion mid of December. We also know between mid of December and basically end of January, we had to go through the tough part of the integration which was who are going to be on the teams when we come to 1st of February. We did that. We did that diligently. I think most new colleagues also appreciated that it had to be done, and therefore, it was easier to remove the uncertainty at the shortest possible time. We're focusing on the synergies, both the soft and also the hard ones, and therefore, we run a pretty strict and also disciplined integration program. And I think here, now that program goes into normal operations, and we can't wait to get going with running the business as a normal business inside us as team Vestas. Just to give you a little bit of scale of where do we then look towards 2025. It hasn't been -- I mean, this is what we also talked about that when we look at '21 and '22, we will run a backlog order from the offshore of around EUR 2 billion to EUR 2.5 billion in revenue both years. When we come to '23 and '24, it is the backlog, That also reflects that we, for a period of time, especially in '19 and '20, had a less competitive technology. And as such, we also run with a lower revenue in those 2 years. Unless something else happens, that's the backlog that creates EUR 1 billion to EUR 2 billion in each of the years. And then from '25 and onwards, previous slides taking into consideration, that is where we establish ourselves as one of the leading offshore OEM again. And of course, there, we have just given a hint of where we expect to be as a minimum. When we then look at also the EBIT margin reflecting on this, we are going to spend quite a lot of time in 2021 to get it up and running full as all the activities here. That is not done within 90 days. And for somebody believing that you move 3,000 employees across just by announcing it, then it's not right. So therefore, we will work with '21 and '22. We will have an EBIT margin that is in the low single-digit in those 2 years. And then in '23 and '24, it will be a business activity that runs around breakeven. But in beyond '24, we see the offshore activities being on average Vestas Group margins. We don't see any reason why it shouldn't be. We don't see any reason why it shouldn't return that when you do the technology and the capital investments into it. And I'm pretty sure also customers recognize that technology also has a price when we look in building the offshore wind parks going forward. When we look at CapEx, and don't forget CapEx here is not only technology, it is also the whole supply chain and manufacturing. That also means when we look towards 2025, there is a technology investment, and there is also the investment into how we localize part of this manufacturing and supply chain. That is too early to say for part of the year manufacturing and supply chain because as you would all appreciate, some of these things depends on where you built your backlog and how it all are going to be delivered in certain parts of the world. There will be a localization, and we just don't say specifically on where that is. But from a CapEx point of view, we estimate that there will be an average around EUR 250 million in CapEx annually in this period up to 2025. We said it all along, it requires some investments here in the short-term to become that leading player in the long term. But for sure, from a strategy and the long-term ambitions here, we wouldn't be without it. That goes without saying. That also then leads us to a look at what are our long-term financial ambitions when we look towards the combined of the onshore, offshore and of course, the service. So when we look at onshore, we still see stable pricing to continue. We see that we're now in a global scalability where new countries can come in, and we will also scale existing countries to the same. We have a rollout of new technology combined with existing known technology, and we build more and more on the modular approach into the technology platforms we run. So we still see offshore wind being very much in favor in many countries around the world. There's plenty of both land and room for it. And as you saw from my previous slides, when only 1% of the energy generation comes from wind, I think there is still a lot to come also on the onshore and also towards the Power 2X. When we look at service, it is definitely growth and investments also into how we can scale that to even higher what we have seen so far. It grows faster than the market, and we expect it to keep growing faster than the market. We are investing in it to support both the digitization and also the scale. But I mean, we also do that to drive out efficiencies, both on our own behalf, but also on behalf of the customers. So this will be still a competitive edge, and we expect to have best-in-class margins of around 25% in the coming years. And of course, offshore coming in, not having the scale yet, there we will see that it has initially a dilutive effect in the service, but we work, of course, diligently with both building the scale and also sharing the best practices. When it comes to offshore, as we just talked about, we are about now leveraging the scale from the Vestas onshore global, both sales, commercial customer, but also the supply chain footprint. So I think one of the imminent advantages here is, we can now talk across everyone on exactly the same things with 1 voice. And that, of course, gives an advantage into the offshore supply chain and also across any other functions at Vestas. We also launched today, the V236, and I'm sure that will get a fairly attraction today. And I'm sure we are ready to start talking about that, and we won't hold back on taking orders in that when we also look towards 2024 and '25. It is a area where investments are required. I don't think we have said anything else in the last year or 2, but we also said that the technology was out of the range of what was available elsewhere. And I think we are investing in that, and we will keep investing in that because, as you saw, it goes from 5, 6 gigawatt a year currently to probably 30 gigawatt a year when we look towards 2030. So this is the attractiveness of offshore. Therefore, that leads us to review our long-term financial ambitions. And yes, it is a happy -- this year, for many of you. We are the market leader, and we want to be -- remain the market leader in revenue. That means we grow faster than the market generally. We have a free cash flow every year. We work diligently with it. In years where we build up, we might use some of that free cash flow, but we also put it to you, and we share how we do that with you. The return on capital employed is minimum 20%. That is how it should be in our business. We believe that. We also have the handles and also the tools to get to that. And then that also results in that we, in the long term, will have a best-in-class EBIT margin of minimum 10%. We have looked at that, and we have also discussed that, and we are not in doubt that we also stick to the 10% EBIT margin because they are all reasons to see that we can get to the 10% for what we can do as Vestas, as a consolidated business with the 3 areas here, plus the development activities we have done recently. So with that, I would just like to take the last slides before we go to Q&A, and that's the outlook for 2021. So the outlook for 2021 revenue is between EUR 16 billion to EUR 17 billion. Service is expected to grow by approximately 15%. Don't forget here, of course, that includes now both on and offshore activities consolidated for the first full year. We expect to have an EBIT margin before special items of 6% to 8%. The service margin is expected to be approximately 24%, all consolidated, both on and offshore. And we expect to have a total investment in the year of approximately EUR 1 billion. And that, of course, includes both the on and offshore. We also here say that the warranty provision are expected to be at a level around 3% in the coming year, including both the on and offshore. The special items are expected to amount to approximate EUR 100 million. We don't have anything specifically under that yet. But it is clear to us that when we integrate the business and we scale it globally, there will be a review of how we have the manufacturing footprint across our globe to also support the growth aspirations and not least also the profit aspirations we have going forward. And last, but not least, we have to mention here, the COVID is out here and is probably worse than it has been ever in terms of lockdowns. So we just have to also say here, the guidance comes with at least a degree of more uncertainty than it normally would do under the circumstances, considering where we are in the cycle. With that, I just wanted to, again, thank you again for the support throughout 2020. And as said here, we are full into 2021. So with that, over to the Q&A.

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

So my first question is around the margin guidance. So looking at your 2020 margin and adjusting for that extraordinary one, basically, it was a little more than 6%. So at the lower end, you are guiding for an unchanged margin and roughly 2% improvement in the upper end. Can you just elaborate a bit on the key components in the margin bridge in 2020 to your guidance in both the lower and upper end? So what the headwinds and tailwinds are you including in your forecast? My second question is regarding your Slide 29, and primarily a clarification question. So these numbers and the guidance you provide here, is that both service and turbines within offshore? Or is it only the turbine segment? And secondly, the revenue guidance for 2023 to '24, did you say that it's already covered by your current backlog, so at least EUR 1 billion to EUR 2 billion in revenue?

Okay. Thank you, Kristian. So if I start with the margin guidance, the 6% to 8%, I think it's pretty clear what Henrik said at the end of his presentation, going through the overall guidance for the company, is that the COVID-19, call it situation or pandemic or headwind, is continuing. And if I look at Q4 of last year, if -- it was, if anything, increasing the pressure. And it for sure hasn't loosened the grip, and that's why we have a guidance of 6 to 8. And obviously, no one knows how that will pan out. But that is clearly one of the bottlenecks that we see for next year. Then, we also see an increase in cost, both for steel as well as transportation. Having said that, I would say, on the steel side, we have been pretty good, if not okayish, to secure a lot of the volume for '21, but it could still be a headwind for us. And transportation and the lack of containers for sure, when it comes to the inbound and the production capabilities, can definitely hit us. Then obviously, also the integration of offshore will have a slightly dilutive effect on the margins in '21.

Yes. Thanks, Marika. And on the Slide 29, it does include all activities as the offshore coming in. So that's the indication here, Kristian. And secondly, the EUR 1 billion to EUR 2 billion are covered by the existing backlog. So my comment is, as Marika said, the longer you come out to '24, you still have some of the opening and other discussions going on. So if something changes here, not from a negative point, but probably more from a positive point, there can be adjustments in there, then some of it might have an effect there. But that's the assumption we work with, and that's the backlog we have. And on your nice question about tailwinds, I still think I have a few tailwinds to find since I joined 1st of August 2019. But that's just a point here to make. I don't think we find a lot of the tailwinds right now because it is what it is.

But on that, so to get to the 8% because you primarily mentioned headwinds, so what is it that you see could increase the margin substantially?

The fourth quarter has been a good quarter. And our own means and execution and the handles we have are working diligently towards another level of the margin. So we don't do anything that here sets us to lower the margins at all, Kristian. So it's our own means and our own discipline and our own execution that does that. And therefore, we also put quite a lot of effort on the stable market conditions and the relationship we have with customers. But we have a couple of things. And one of the things is we have to address our quality issues internally here.

But I think, Kristian, not to dwell on your question, but one thing that is important to say is really what Henrik is mentioning. If you look at the underlying run rate for Q4, I would also point to the fact, unless we had a lot of improvement effects in Q4, and that is primarily take -- or -- primarily taking place in Q4. So obviously, if that works as anticipated, that will definitely give us a better opportunity to get into the higher range.

Our next question comes from the line of Gael de-Bray of Deutsche Bank.

I have 2 questions, please. The first 1 is about the characteristics of this new 15-megawatt offshore machine. So you said it's not a direct-drive turbine. So how do you judge the serviceability of this turbine, the maintenance cost of this turbine versus others in the market? And also, what sort of market share do you expect to grab now? And that's -- and what kind of market share is actually embedded in the offshore revenue guidance of EUR 3 billion for 2025? The second question is on the long-term 10% margin target you have. So what are basically the steps needed to get to this 10% mark? What do you see changing going forward in terms of supply chain, pricing, mix or other things that will help you get to this 10% print?

Okay. I think, first of all, Gael, thank you for your questions. I think on the offshore here, when you launch a new technology like this, a very important part of designing and launching the technology is, of course, we look heavily on how we can maintain and service the turbine. That goes without saying. Why is that? Because it leans straight between the 2 activities of putting the solution in place and servicing. So it has been considered. It has also been considered what are the split between the initial investment and what are the split into also the ongoing OpEx to the solution. There, we have been close to a number of the customers. And here, we talk from both the legacy of now more than 4 decades and a number of decades having it both on and offshore. So I think we are confident in the choice we have taken here. But having said that before, we did consider all available alternatives here and has ended in this one, and that has other advantages compared to where we are. So we are confident that's the right thing, and that's the technology we are backing. In terms of your 10% EBIT, I will say here, when we look at that, we are fairly confident of that we have the available tools and also handles to get to the 10% EBIT target we have, not only as a 1-a-year, but actually as a -- on a more sustainable part. But it is also when -- sort of when we look at that, we have to just say, what we did a year ago, we scaled to a new level of activities. That level of activities you can probably also see confirmed and evidenced a little bit with the order intake in 2020. It is a level of activity that is now going to be sustained because we're scaling towards. And don't forget, when you then talk about a year where we just -- we didn't come out of '20 and now everything is settled down. We grew 59% in deliveries in '20 compared to 2018, and we are 46% higher in turnover. I will just sort of say, it takes a little bit of time to settle in, in a new area. And at the same time, we are just integrating 3,000 new employees and colleagues into the offshore. So I think we got the handles, and we can see that. But as you will appreciate, it doesn't happen within a quarter as such.

And what about the market share that you implicitly assumed in the EUR 3 billion revenue guidance for offshore?

That is probably something I will keep together with my customers. So I think here, there's a little plus ahead of it. So we just say, we'll go for a minimum EUR 3 billion, and then we will see how much when we get closer, both in '21 and '22 of how that pans out in terms of pipeline. But right now, it doesn't seem to be the lack of new coming projects and tender interest for it.

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

Also a few questions from our side. The first question goes to the loss production factor. You also mentioned this in -- or was Marika in the presentation, but it has been increasing for quite a while now. Is the increase only due to the reported quality issue? So if you strip that out, you are back to the 2% level. That would be the first question.

Yes. Claus, that is a correct assumption.

And this extra provision in Q4, is that only -- but that is linked to these 150 turbines where you had some issues from a subsupplier?

Yes, that's correct.

It's not additional turbines, it's the same 150 turbines?

It's the 150, and obviously, it caused something to close down, and we are addressing those turbines in the first half of this year.

Okay. And then the second question goes to the '21 guidance. If we try to do the interested revenue guidance for the onshore division, then it might be slightly disappointing compared to consensus. How should we think about in and out orders in 2021?

I think we have given guidance here. If it's slightly concerning, I'm -- of course, I can't help you that in so much. We are very transparent in the order and how we look at it. We are well covered. There's still some [ in-search ] to be done in '21. But as we would say here, with the range of EUR 16 billion to EUR 17 billion, it's also a fairly good indication of that we feel comfortable of the backlog we're executing on. And also when walking into that year, Claus, we see that as a pretty positive one. And then as you've seen, you've gotten an indication of where offshore comes in. And I think that's -- I think, mainly confirming what we also have said all along that it's the new level of activities we are aiming for.

Okay. And then regarding the service margin, once again, you are guiding a, let's just say, low EBIT margin for the service division at year start. And then the year performs, and then we are all positively surprised. The 24% in '21, is that diluted by the offshore business? Or is it normal, let's just call, cautiousness when the year starts?

I won't comment on a degree of cautiousness. But I think you have a very successful team of service and a team service in here. And it just -- it includes both. And as we said on the slide as well on Slide 29, the service activities in offshore comes in with a dilutive effect from the beginning because they don't have the scale yet.

In the service division also?

Exactly. I mean that's why it's a consolidated 24%, as said in the guidance slide.

Our next question comes from the line of Supriya Subramanian of UBS.

And I had 1 question just specifically on the warranty divisions again. Just to clarify, in the fourth quarter, you booked around EUR 194 million of provisioning. Would it be fair to assume that the normalized rate would have been 3%, so the additional around 1.5 percentage is, let's say, relatively extraordinary impact in 4Q? And also, given that you've guided just continued sort of 3% into 2021 as well, does that mean that more of the provision relating to this latest warranty issue has been -- has already been provided for? That's part one. And second is more around the onshore market outlook. And if you could just share your thoughts on what could be the potential opportunities coming up from recovering, especially in the European and U.S. markets over the next few years?

Okay, Supriya. If I start with the warranty provision, and you are right in your assumptions that it's related to the inserts on the blades, primarily here in Q4. And that also means that we have taken height for the cost of addressing the 150 turbines. And as I said, that will be dealt with here in the first half of '21.

Good. And if I -- Supriya, if I take your question on onshore, it has been clear for us when we look at it and I think also when you look at the -- both the order intake and also deliveries, we have had deliveries in close to 40 countries on the onshore side. We've taken orders in 30 countries plus in the past year. And I think even in that list of countries, we see new countries coming in, we see a general trend of existing countries still doing pretty well. And I think what you just probably saw in the U.S. is that you also saw the U.S. now not going away. I mean it's one of the points we have discussed and said all along in the last couple of years that we believe that it will be a lower level of activities at a point with the PTC being phased out from 100%, but still, it's also now an indication of that there will happen things, both on and offshore going forward. When we then look into the EU, it's obvious for all of us that announcing an EU Green Deal with a lot of financing and a very positive framework for renewable energy transition, it now comes down to what are the individual countries going to do under that framework. And even in the EU, you have seen countries suddenly emerging again. You've seen Poland going both on and offshore. You've seen Spain going onshore. And in that, I think it's fairly obvious that we haven't really seen a movement from, for instance, a known country like Germany and how they are going to move. But I'm pretty sure that's also one of the things we can do. And the truth of it is in the order intake, we had north of 17 gigawatt in '20, there isn't particularly any volume from, for instance, Germany and India in there. So India is another country which we've talked about for a long time, and I'm sure we will keep talking for in a long time as well, but hopefully more positively also to see that some of the projects are actually getting a higher traction. So I think right now, it's fair saying if you look at the various continents, we haven't found a continent that is actually talking about going backwards, not -- and neither in onshore as well. And we are well positioned from the supply chain. So as we said here, still positive for continuing the order intake. And I think, again, '20 has been a good year as an evidence to say that the onshore continues both with, and to some extent, with a less degree of U.S.

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

Just a few questions here on the offshore side and much appreciated with the slide where you give some indication of how you see this develop in the coming years. Do you, in the activity here, give any or include any projects that still have preferred supply status? Or is it all firm orders? That is the 1 question. And the other question I had is where you have your margins for offshore to be on par with group average in '25, that would indicate that offshore margin is above -- offshore margin is above onshore. Can you give some flavor on why that should be?

I would just here say we work with a confirmed backlog, Dan. So of course, the numbers we are giving here with the ranges we are having is the backlog we're executing on of confirmed order. In terms of your interpretation of what says average Vestas Group margin implying that you think offshore should be well above, that is not what it says. It says average Vestas Group margin. So can I say to the last decimal that, that will be the same? No. But it will be part of it, and they will be around the average of the Vestas Group margin. So if we were in the guidance territory as we are today, that means it would have been between 6% to 8%. And at that point in time, if we are at 10%, then it will probably be around 10%. We don't aim to build a business unit that sits with different margins to what we have in the existing Vestas business.

Okay. So I understand it. But when you say average group margin, you include service here, right?

Sure. And then we will also say here, when you look at that, we -- as you can see, up until '24, it could have a -- or will have a dilutive effect, and that's just what we are saying from '25 and onwards, it's not necessarily a dilutive effect, it's an average effect, which is positive.