Vestas Wind Systems A/S ($VWS)

Good morning, and welcome to our Q1 2026 release. I think the keyword for this first quarter, of course, for the world is heading of energy crisis. Another 1 after the last 1 in H1 2022. Also here very much appropriate to thank you for a good start of the year. Thank goes especially to customers, to partners, colleagues and other stakeholders, thank you for many -- very many valuable conversations and commitment in what has been an increasing volatile world throughout the first 4 months of the year. So with that, let's go to the key highlights of Q1. So key highlights from Q1 revenue of EUR 4 billion. That's an increase of 14% year-on-year, driven by offshore where we also see the manufacturing ramp-up is improving year-on-year. EBIT margin of 3.2% is better profitability in both onshore and offshore, leading to the best first quarter EBIT margin since 2018. Our service EBIT margin of 16.3%, continued cost out in the service leads to lower revenue with profitability in line with outlook. We'll come back to more details on that. And then, of course, order intake of 4.5 gigawatt strong offshore order intake in the U.K. mainly related to AR 7 and a good onshore momentum leads to record high backlog of now more than EUR 36 billion. We are also returning cash to shareholders for the third quarter in a row. We will initiate a new share buyback of EUR 100 million will be initiated in starting as of tomorrow morning. And then last but not least, outlook for 2026. We maintain our guidance, and I'll give you more details of that when we get to the end of my presentation. With that, I will go to orders and markets in general. I think here, wind energy key to affordability, security and sustainability. We probably couldn't have chosen a better value proposition and probably a better narrative to talk to -- so the energy crisis only confirms both the need for energy security, not least energy affordability and, of course, as always, energy sustainability. When we look at the global environment for us, I think so far in Q1, we have seen inflation, raw materials and transport costs being reasonably stable. But of course, tariffs and blockages will, over time, increase cost and some of the energy will also lead to inflationary pressures when we get quarters ahead from where we are today. On the ongoing geopolitical side, I think we can say, it is -- there is trade volatility. There's also some movements in the geopolitical scenario if not for day to day, then at least week for week or month to month. And of course, the energy crisis is only leading to further regionalization. I think we have seen this. We have also moved toward this. We also, therefore, have created a large part of our resilience being prepared for this. So I will say we are in a good position also to deal with some of these variances. When we get to the market environment, I think, of course, in the longer term, the energy crisis here again, gives us an opportunity to talk to not only customers, but also to governments around not least in Europe, where the need for energy security and affordability is probably higher than it's ever been. When we look at the grid investment, it is prioritized and getting prioritized in key markets, but the challenge is still here. And being a Danish national citizen, I will say, we don't have the best example to share when we pause something of a grid for now 3 to 4 months. in the middle of an energy crisis. When we look at permitting, I think it's improving in certain selected markets. But overall permitting still struggles with its red tape. Some of the auctions and market designs are still challenging but I can also see governments are sharing with each other and, therefore, improving. So terms are getting better. I think here is the time and also the place to say a problem thank you in mentioning U.K. and Germany. U.K., Germany shows examples of what I will call courage political leadership characterized by Catarina is an net Miller band. You're doing it. Maybe it's not always as popular. But in years from now, we will all appreciate what you have done to increase capacity and get these in processes running so we can actually get capacity installed. When it comes to project level in this Q1, we've had a very good start of the year. Thank you to the team. Thank you to partners on it. we have had very small disruptions in it, and it's probably some of the best execution we have seen in the onshore and now also in the offshore where there is, at the same time, execution also a very high focus on simplifying investors from sourcing the components out to installing it at site. Next 1 time of the year where normally WoodMac and others releases their market data. We continue leading the industry. I will just say here highlights on installation in our addressable markets increased to 47 gigawatt in '25 from 37 gigawatt in '24. So a growth there. Vestas remains the market leader. When we look at the market and the development, again, an increase in the market size but also installations often deviate of what Woodmac count as installation compared to, for instance, the OEMs and how well we install and finish the project with our customers. The Vestas' market share in key development market was relatively stable in 2025, while the market share development in others was mainly driven by installation growth in emerging markets, predominantly such as India. When we look ahead, we see growth in our core markets. We're really happy with that, and we will take advantage of it. And at the same time, we will use time really well to increase our competitive in those markets that is really core to esters. With that, I will go to the Power Solutions. And the Power Solution is a really positive story in Q1. First of all, because we're operating in a market where the need for electricity is underpinning the demand and its demand that it needs to have a timely supply. So when we look at it, order intake in the quarter was 4.5 gigawatts in the quarter. It's driven by strong offshore order intake in the U.K., mainly related to AR 7 announcements. And then it's the onshore momentum across all regions. The ASP on new orders was EUR 1.16 million per megawatt. It's above the prior quarters, but also the ASP reflects a good mix of project scope, geography and type. The overall pricing environment remains stable and therefore is also very supportive for the progress of the profitability of Vestas. In Q1 2025 Vestas development, generated 230 megawatts of order intake from Brazil with the Iskinadevento project fully developed by Vestas and therefore, also exchanged with the partner, Ekino. I will also say here for the ease of presentation in the quarters, we have decided to take the slide out on development simply because we think there's happening too little on the slide quarter-on-quarter. Therefore, you will typically see it in a bullet format on the power solutions in the quarters to come. When we then look at the Power Solutions order backlog, it's increased to a record high of 37 -- sorry, EUR 36.3 billion at the end of the quarter. The progress that we have seen in the offshore ramp-up, including reduced tax time and improved efficiency, of course, required us, unfortunately, to adjust the number of colleagues and employees at the linear factory. It was something we have spoken to some of you about in the last couple of quarters because, of course, that is part of the evidence of that our offshore ramp is progressing as planned. And probably in this quarter, progressed positively compared to where we expect it to be. I will say in combination with further progress on our operating model reset by simplifying and becoming more competitive towards our customers. this is a really positive sign coming out of Q1. You can see the underlying breakdown of the order intake to the right, and you can also see the last 5 quarters development in ASP. With that, likes to go to service. We've had a good start of the year. The recovery is absolutely in full execution. We spent a lot of time on it. And I will say here a couple of testaments in the numbers, which I will also -- and both me and Jake will spend some time in taking you through. So the service order backlog increased to EUR 39.8 billion. That includes EUR 1.1 billion uplift from indexations and also EUR 0.6 billion headwind from foreign exchange rate movements compared to a year ago. The service reached 164 gigawatt under active service, an increase of 3 gigawatt compared to last quarter as healthy additions and renewals in the quarter outweighed expiries and deselections. I will say, especially on the renewals, they are better than we expected a year ago and probably also better than we had exchange of our internal discussions. So that just shows our value proposition of the service business is really appreciated by our customers. Service remains and is a high priority strategic priority for us in 2026 as we aim to recover profitability through operational excellence, commercial reset and cost-out initiatives. We're still not there, but I think this quarter was a real testament of that the progress we are making, the cost-out initiatives are really proving its fact which therefore also lower the top line but stabilizes and also build the profitability for the future. I'm happy with that, but I'm also happy to see that we are progressing in both parts, both the operational cost out excellence and also the commercial reset. You will see the breakdown of service here to the right. So we have EUR 39.8 billion in the backlog, of which EUR 33.9 billion is onshore. We have 164 gigawatt on the service of which 155 gigawatt is onshore. And we have, as stated here, more than 11 years of average contract duration. Again, here, tough times in service for many colleagues, but we are having the focus, and we keep the focus because it's actually now showing the real movement in the quarter and that you should take away as a positive. Let me provide that go to sustainability, Q1, sustainability in everything we do. And I think for those who follow also us on social media, you will see we also welcome really the progress we have seen where blade recycling are now moving from what I will call an early prototype to also sell. Thank you to Steiner and our partner chosen there, and we look forward in both the quarters and the years to come to find and solve another part of our recyclability of the turbine. Another thing here is 1 of the 10 energy companies that makes a difference that reach now the Times list, thank you times for taking us into consideration of that, and we will prove you with some examples also in the future years to come. Highlights sales turbines produced and shipped in the last 12 months are expected to avoid 468 million tonnes of greenhouse gas emissions over the course of their lifetime. The carbon emission from our own operations increased by 4% compared to last year, mainly due to vessel emissions from increased activity in offshore. We've spoken about that. We've also spoken about this in the sense of that this is part of the negative development in carbon emission when you now install more projects offshore and therefore, have more of that emission coming. But I just wanted to highlight here, we are measuring our own Scope 1 and 2 emissions in 112,000 tonnes, and then we are putting solutions in place that displaces 468 million tonnes over the time. anyone with that in mind, probably say that's a trade worth doing. On the number of total recordable injuries per million working hours, TRIR remained stable at 2.8 compared to last year. Safety remains absolutely 1 of our top priorities for us, and we tiresly work to improve our safety performance across our value chain. This is an average across our more than 80 countries that we work in. And of course, there are places where we are above that average. So right now, it is about getting everyone to work at work and home from work safely, and that is really an ethos of what we strive for. With that, I'm pretty sure Jakob is excited to present some of the quarterly numbers. So over to you, Jakob, for the Q1 '26.

Thank you, Henrik, and let me take us through some of the details of the financials of what is the highest first quarter profitability since 2018. Revenue increased by 14% compared to Q1 last year. The increase was driven by higher revenue in Power Solutions, offset by lower revenue in service, which Henrik you already spoke to. EBIT margin before special items was 3.2%, an increase of 2.8 percentage points year-on-year. The development was primarily driven by improved profitability in Power Solutions. In the quarter, we incurred EUR 35 million of special items, mostly related to the operating model reset started in the fall of '25 which included both additional severance provisions and noncash write-down of inventory related to a few development projects. and diving into the segments, starting with Power Solutions, where we see a solid start to the year. In Power Solutions first quarter revenue increased by 23% year-on-year, driven mainly by higher megawatt delivered in offshore and, to a lesser degree, by higher average selling prices on the megawatt delivered. EBIT margin for Power Solutions reached 2.7% -- plus 2.7% in Q1 up 5 percentage points year-on-year, driven by improved profitability in both offshore as well as onshore as well as for obvious reasons when we increase the top line benefits from operating leverage. Please note that the onshore revenue is expected to follow the usual back-end loaded profile during the year, while offshore revenue is more evenly spread across the quarters. And you see on the right, both the onshore and the offshore revenue as well as the EBIT margin. Moving on to the Service segment where we see the recovery plan improvements leading to cost out. Service revenue decreased by 9% year-on-year, impacted by a 4% currency headwind and a decrease in contract revenue. A higher level of gigawatt under active service was more than offset by the continued cost out. Transactional sales were in par with last year. Service generated an EBIT of EUR 136 million in the quarter equivalent to an EBIT margin of 16.3%, so as expected. We continue to execute on the recovery plan to achieve our long-term ambitions. And then moving on to a new slide and moving on to the focus of the impact of our operating model, reset and our operating scale benefits. The operating model reset is ongoing as you know, and aims to improve our operational and commercial efficiency through removing bureaucracy and sizing the organization together with strengthening our culture. The SG&A cost amounted to 7.4% of revenue on a last 12 months basis, an improvement of 0.1 percentage points compared to a year ago, as higher revenue more than offset the increased cost level. And as you can see, we have seen significant improvements since 2024. And in terms of net working capital for the quarter, we see an increase in the quarter, which is reflecting normal seasonality. Net working capital increased in Q1 to a negative EUR 2.4 billion, driven by an increase in inventory levels and other receivables and liabilities. Net working capital reflects the typical seasonality of our business, as we build inventory for higher activity later in the year. As a percentage of the last 12 months revenue, net working capital in the first quarter amounted to a negative minus 12.3%, which is a minor improvement compared to Q1 last year. Then moving on to the flow statement. Our operating cash flow was minus EUR 289 million in the quarter, a decline compared to Q1 in the prior year, mainly due to the changes I just mentioned in net working capital. Total investments amounted to EUR 198 million in Q1, a decrease compared to EUR 307 million last year. The decline reflects quarterly phasings of the investments. Our adjusted free cash flow in the quarter amounted to minus EUR 533 million, a decline compared to last year, driven by the reasons mentioned in the above. Nonetheless, this is on plan, and we ended the quarter with a net cash position of plus EUR 435 million. In terms of our provisions, LPF reduced as planned. The lost production factor improved in Q1 now that the repairs at the size mentioned in the recent quarters have been completed. Please note that the LPF is measured over the last 12 months, and therefore, it will take some quarters before this effect of the specific sites are fully out. Warranty costs amounted to EUR 119 million in the quarter, corresponding to 3% of revenue. Warranty consumption in Q1 was EUR 149 million, so that's in line with the expectation and also in line with what you see in the previous quarters on the right, where we see consumption is higher than our provisions. Then on capital structure. We are announcing, as Henrik was mentioned, a share buyback in the third quarter -- for the third quarter in a row. Net EBITDA -- net debt to EBITDA ended the quarter at minus 0.2x, stable compared to last year and within our targeted range of minus 1 to plus 1. We maintained a solid investment-grade rating from Moody's with a stable outlook. Given our solid start to the year and a healthy capital structure, the share buyback of EUR 100 million is initiated, as Henrik mentioned, and it's in line with our intentions to return at least 40% of net profit to shareholders. You will see that we have shaded it in the Q2, Q3 and Q4. And that is in line with our communication that we will communicate this on a quarterly basis. At the Shareholders' Annual General Meeting in April, the proposal to cancel the 14.3 million shares was adopted. So this is a friendly reminder to everybody on the call that you remember also to change that in your model. And with that, ending on my new favorite slide, focusing on shareholder value through performance. Here, you see our most important financial metrics in the longer perspective. These metrics are central to how we measure our performance and align nicely to shareholder value creation and also to our equity story. And I encourage you to read further on that in the annual report. With that, Henrik, over to you for the outlook.

Thank you so much, Jakob. And I think, sure, you've internalized that to your favorite new slides, and I think I can find a few other in that club because this also shows our long-term trajectory is actually paying off. And I think that this is a testament to many people working to generate the underlying progress in our financial metrics here. And of course, also is a testament of why we feel comfortable of doing deferred share buyback third quarter in a row. So with that, I will go to the outlook. And the outlook here for 2026 revenue, EUR 20 billion to EUR 22 billion. The EBIT margin before special items is kept at 6% to 8%. Services is expected to generate EBIT margin before special items of 15.5% to 17.5% and total investments sits around EUR 1.2 billion overall for the year. With that, I will also sort of, again, thank everyone for being here, thank everyone for the conversations we have had, and we look forward to see many of you also in the coming day. And I can see, as somebody that followed the presentation here, I can see my IR person has sort of lost almost as much here as I have because there were 1 or 2 slides that were probably an early draft versions or something, but that's what happens for Frederic. So let's go to the Q&A and pass back to the operator for opening the Q&A and I hope people are okay with not raising questions to things that were in draft in here.

[Operator Instructions] The first question comes from the line of Akash Gupta from JPMorgan.

My first 1 is on offshore ramp-up. You had very strong revenues, which indicate ramp-up is progressing well. But can you comment on installation activity? And where do we currently stand on commissioning of the first 2 projects. Also, if you can elaborate on how much increase in contract assets in the quarter was driven by offshore where you had strong revenues and I believe invoicing is generally slow in the start of the year? That's the first one. .

Thank you, Akash. I will sort of say thank you for the offshore point here, installation is clearly as we would expect, when you get through Q1 and you have better weather improving throughout Q1. picking up and it's definitely continued in also to Q2. So we plan to have the started projects we started on last year, finished here in -- I will say, first half of this year, give and take, and we see ships are going out. But the more positive thing of it as well, Kashis that -- what you've also seen from the factories, we are now ahead in some of those plants, which is really positive for our ramp for also the future projects. Then we will always find -- we will find things when you establish offshore projects of that nature, lumpy parts both when it comes to grid connection, we have turbines connected and we are working to the commissioning of turbines as they go offshore and get commissioned. But it is also clear that in Germany, we are working parallel. It works really well. There are a couple of delays in when we look at other parts of Europe when it comes to the offshore grid. So that will -- might push some of it to the right in terms of timing. But at least I can now -- we can now see sit here and say it feels good in the sense of the progress we have made. And therefore, it was a testament when we also had to say goodbye to some colleagues in the factories because that was part of our -- our in the factories for the ramp-up. In terms -- Jakob, you take the next.

Yes. I guess, in terms of net contract assets, I can confirm that the increase we see in Q1 is driven by Power Solutions.

My second 1 is on the U.S. So the Section 232 investigation that is currently ongoing. It started on 13th of August and as per 270 days deadline, we are not far from when the administration might come out with announcement. I'm wondering if you can tell anything you have heard on this regard from either administration or among the players, customers in the market. And also give us some indication of what could be pent-up demand when we get some sort of clarity on Section 232 tariffs, which might be sooner than later. .

Thanks, Akash. And again, as said here, I don't think anyone is better than you to try to lump a few questions into 2 questions. But as always, here is the thing. I think the Section 232 is undergoing a review I can point a bit in different directions, and I don't think necessarily there is that much and have been that much predictability around tariff and directional setting. I think as we've also seen many tariffs are being up for discussing and then you might have a complaint and then they either disappear or they get in a different direction. I think the underlying here is more important. The underlying is that's most places around in you need electrons and they need it fast. And that normally in the U.S., and you will appreciate that, capital moves where there is both a need and a return and right now, with the underlying energy and electricity and the price of electrons are going up in many places. So it is a little contractive, I think the conditions for establishing projects in the U.S. of the nature of renewables, solar and wind has probably never been better. But there, we have to go through a couple of bumps on the road. But so far, we are dealing with it. Our customers are keen to deal with it, but you can also see many of our customers are not that particularly interested in pointing to locations or projects or customers for that matter because there is no need to be taken in that. So progress on order intake, progress on establishment of projects. And so far, it seems that we are having an okay balance with the current interpretation.

The next question comes from the line of Kristian Turner from SEB..

Fairly pleased, and I'm confident with the development we are seeing. And I'm not completely sure the stock market share your confidence here as we look at the margin on Slide 13. It seems that there's been this downward trend for the past year or so. So can you maybe help us understand why we should be concerned around this downward pressure on the service margin? .

I'm 5 quarters through now on the recovery. And I think here, we do all the right things for the business. We share with you on the -- both the renewable and this time when you see a drop in the top line here, as Jakob rightly took us through, some of it relates to pure and symbol FX on the business and where it comes from and the rest of it is a dedicated executed cost out, which I'm really pleased with. And as Jakob also said on the net contract assets, it's in well control under the service side. So I don't know, Kristian, you know me well enough. I don't necessarily speculate in a couple of hours on a share price development. We're doing all the right things for the business, and that's what really matters on the renewable. We are surprised positively over. We are able to do the both the terms and also the renewable pricing on some of the service parts that's happening with good partnership with customers because it makes and creates value for them on their solutions. So I don't know. And the honest is, I don't know, and I don't know if that is the reason or the link to a share price development since 9:00 this morning. And in reality, question, it doesn't matter to me because we are doing exactly the right thing for the business. And it is well progressed since last quarter, and it is enormously progressed since we started the journey 5 quarters ago. So I'm not sharing the same frustration. I just thanked most of the colleagues doing it. And some of it is a tough job. I fully appreciate that when you take cost out of that nature. But there are plenty of spaces where we can take further cost out and that's what we have also spent at the start of Q2 doing. So I don't know, Kristian, is the honest answer, at least on the short-term share price, I give it up that I don't want to comment on.

That's fair enough. And then my second question on Power Solutions. Obviously, quite a remarkable improvement in the margin year-on-year. Are there any drivers where we should be a bit careful not to just assume that you can continue to deliver sort of the same underlying performance when we look into the next couple of quarters? .

Thanks, Kristian. I love the question here. I could hear that was sort of just around the neck with 500 basis points over the following 3 quarters as well. I will sort of say here, we've seen -- and don't forget, when you compare 4 quarters back, you compare about something where ramp-up costs in offshore was very high to something where we, in reality, have improved ramp-up cost of offshore continuously now for those 4 quarters. But of course, it is a significant improvement. And that's also why you can you can hear on both the voice and the tone and a bit of the confidence on it. We are in a good place now on the offshore ramp. And that, of course, is reflected also in a bit of what we are looking into and that you can read it back into sort of taking a share buyback program because that's how confident we are in where we are with the ramp. And of course, 500 basis points is not to be neglected in Power Solutions, it is a really, really good underlying. And a material part of that comes from the offshore ramp-up coming out, but significantly also in there is still an improvement in onshore -- both onshore execution but also onshore deliveries because we now see where you're establishing that many turbines, for instance, in a key market like Germany, you get synergies in terms of people, you get synergies in terms of installation time that, of course, also underline supports our synergies and therefore, profitability on establishing that capacity.

We now have a question from the line of Casper Blom from Danske Bank.

And congrats on the strong improvement here in Q1. I'm sorry about I'm going to dwell a little bit more into the Service division. I think that is getting a lot of attention from the stock market these days. And I was hoping maybe you could comment a little bit as to what degree that the service margin is currently being burdened by fixed cost? Because as the -- as you're taking out costs and thereby driving down revenue, I assume that there is a worsened absorption of the fixed cost base within service. Can you give any kind of commentary as to what the impact is here? And secondly, in service, if you could comment on to what degree the service margin is currently burdened by any kind of penalties from customers on the turbines and what improvement we could see from that side in the future?

Thanks, Casper. I think there's 2 -- it always 2 good questions, and it's a yes to both of them because, of course, you can always say when you have a successful cost out, if you only do that in direct cost, then of course, it will hurt the business over time because the way the accounting of the service business is that when you see the top line going down, that's actually a very strong signal of the cost is coming off quickly. That is happening. But we have managed also here to take part of the FCC and therefore, the white colors out as well. So it's not only in at site and frontline, it's also throughout simplifying the service business. which is why when you come in now with something that is still in the mid-16s, it's actually pretty positive and pretty satisfying in a quarter like this. Right now, we are not so much fixed on or focused on driving a top line growth on the service business. We got to have every site in control of their cost allocation directly. So that's a positive with it. And as I said here, outlook for the year is exactly in that range. So I think here, we're happy with the first quarter and if we can continue some of that, then it's a positive also for the full year, but not least also the years to come. On the side, as Jakob went through, when we are hovering around 3% in LPF, that is still I wouldn't say it's a percent too high, but let's just say, at least it has to start with a 2%, and it's not 2.9%. It has to come towards 2.5%, 2% before we are pleased with. And before we see some of those performance lease actually coming out of the P&L. And that's not insignificant to the service business as well. So therefore, that's another dimension where we see family play right now where we got to get the warranties and we got to get the repairs done and I think here, you can see that commitment in another number we are sharing with you, we are spending more than we are providing quarter-on-quarter, meaning that we don't see new components failing of material degree. but we are spending quite a lot on repairing some of the older ones. And that's the drive we have right now. And we've spoken to that. And of course, that has 1 purpose only, which is, of course, getting first of all, the LPF towards 2.5 and therefore, also getting LDs lower in the service business. And that will also have a material contribution to get service back to 25%.

The next question comes from the line of Alex Jones from Bank of America.

If I can start back on the U.S., there have been press reports recently that the Department of Defense is holding up permits on around 30 gigawatts of onshore projects. Could you comment on whether that's impacting any projects where you've already had orders and it could face delays and perhaps more importantly, is it hoping back any customers from placing orders on new projects despite clearly, as you mentioned, the underlying need for electrons only increasing? And then secondly, just on raw material inflation, given the Middle East situation, could you comment a little bit on what you're seeing so far in the supply chain situation and whether you expect any impact on profitability later in the year into '27 if the situation remains as it is today.

Thanks, Alex. I would say on the U.S., I think here, it's a little bit of an interesting 1 because, of course, yes, that is a thing that has come in and is being used as part of the defense or up locking that in a sense or at least not progressing the sort of the applications that are at a certain point in time, I'm pretty sure the industry will be after that attitude. And therefore, we will see that probably people will be told nicely that, that has to start working again. There's nothing in the backlog that is hurt by it because it's not like I've never seen customers in the U.S. doing closure or for that matter, a firm order intake. or building projects or starting on them without having their full permits. That has always been the environment in the U.S. with the legal framework on projects of any energy nature that if you don't have the permits or you don't have it. So therefore, a lot of those that are in there, and you're talking about potentially 30 gig being hold up by not having permits but then I could give you a similar impressive number that is already in there that I can actually pursue already now project starts. So it's not like it's holding up wind if somebody sat with that thing. And you can see that in order intake in Q1, you will also see it in the coming quarters that there will be order intake because rightly so it is so attractive. It's not only financially attractive, but it is physically attractive to get the electrons out to either the factories or the data centers. And that is key critical for any U.S. states for any U.S. company. So I'm -- yes, I see that there is a hole up, but I'm also fully aware of that sometimes some of these holes are being used in a either a negotiation on what is permitting legislation or whatever in a wider scheme of the U.S. I will allow somebody else to comment on that, but there is clearly something in this that is going on in a wider space. When it comes to the raw materials on the Middle East, we are not immune, but on the other hand, we have built an enormous resilience. And I think sometimes when you sit and see effect on businesses, of course, you see effect on businesses because, yes, oil has gone up to $120 and other stuff. But in the short term, in our supply chain, we are very little hit by that. And when we look towards 2027, it is not like we saw in '20 and '21 where, first of all, physically, exchange were very difficult and very complicated because societies was closed down. But on the other hand, our binding period with customers is down to something which is a month, 1.5 months or 2 and that means our indexations and other stuff covers some of this. I haven't seen it yet, and we have many partners that have helped us mitigate throughout the first 4 months of the year. So I'm not so worried so far. But of course, if we get longer into the year and it still has this open and close literally daily for the week. Of course, that's upsetting to the logistics. But let's not forget, Alex, that it's only a few quarters ago where we also saw a similar thing on SS where we found ways of rerouting components and materials. So the world has become better in rerouting. But I fully understand the frustration or the worry if you are using jet fuel every day or something like that because, of course, that has to come for you through Hamus at some point in time. And that I fully see not so much a risk for us, but that's probably more a macro benefit. But thanks so we're in good shape, and that's just what we come out of Q1 and confirming.

We now have a question from the line of John Kim from Deutsche Bank.

I'm wondering if you could help us think through perhaps the pipeline for offer for the rest of the year. What other projects regions should we be focused on versus a very strong Q1 intake. I also wanted to follow up with any comment or color you can give us just on profitability and the near-term pipeline and the backlog. How should we think about price cost, given your earlier comments on logistics? And direct energy costs for the year, specific outgrow, please?

Yes. You hear in the tone of voice, I'm pretty sure pretty good momentum. We're coming out of something where we are 500 basis points better in Power Solutions. So John, on the last part there, pretty well suited, and that sits in line with also what we comment on. We have a really healthy backlog. We are building to that healthy backlog, not by compensating things in there that is not healthy. So we are just in full execution mode on something where we can see profitability is really underpinning and underlying definition of building towards not only the guidance we have, but also to the longer-term aspiration we have of 10% EBIT. When we look at pipeline rest of the year, I always say, guys, we got to put a line in the sand every quarter end. And then if it drops into that quarter, we sit here and we say it's a really good quarter. significant on offshore this quarter. We will see what else we get near in offshore, but they will always be lumpy where the onshore is more running but still some of the part and part of the world is lumpy in offshore as well. So if you're in U.S., if you're in Australia, if you saw it also here in Lat Am, then it suddenly becomes lumpy and if it ops into that quarter, we still see good order intake remain part of the year. We see an opportunity to accelerate certain places, and we will try to do that. And yes, so now I've given you a couple of places. If there's 1 place I would have expected more by overriding and taking the interest of society and energy supply into consideration, it would be Europe. But it seems like the only 2 places in Europe where they really get the acts together is Germany and U.K. The rest of it is still sitting and discussing free out bureaucracy and probably hiding in their own bureaucracy instead of just getting capacity permitted. So I'm positive on pipeline, and I do somehow in here hold a believe that Europe will pick up throughout this year.

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

First question is about the lost production factor. You've talked about the importance of this to fall. Given this is a 12-month trading indicator, maybe can you share the direction of the latest readings just to gauge your level of confidence of how quickly that LPF might move down and understand that what still is the most critical element that needs to be addressed to get that LDF down. .

Is correct. It's a 12-month rolling, and we will continue to show it like that. We do see the warranty -- so a picture of that or a financial picture of that is what we provision on a monthly -- sorry, on a quarterly basis. And there, you see that we have -- we peaked that some years back, and Q1 here, albeit, of course, being only 1 quarter is also down compared to last year. So it's a good indication and there we -- what we see, let's say, in our maybe shorter rolling -- 12 months rolling is good indications that we, over the year, should see further improvements as we have seen in the last 12 months. I think that's the closest way I can get to that.

Very, very clear. Can I touch also on U.K. and offshore? Obviously, you have the, let's say, the conditional factory announcement that you said clearly is predicated on more order intake. Can I understand maybe what your expectations are on maybe cadence of order intake and what you'd actually need in order to trigger that investment? .

No, as I said, what is out there is we have a partnership. We will join builds with U.K. and for that matter, Scottish government. So therefore, it's between us to make that decision. There is an outcome from AR 7. There is -- we walk into the next planning of AR 8. I think U.K. is doing all the right things. So again, 1 of the credit, I will say, countries get credit. But behind countries, it's key politicians. And in this case, it's at Milliman that drives that. So when we feel we have the right demand in that as partners, we also will build the factory in leaf that will then be an SL factory. So we're confident that will happen. I don't want to set an opening year on it. It typically takes us 18 months to scale and ramp some of that to there for Sean. We're getting closer, and I will be -- no honesty personally, I will be disappointed if it hasn't happened within this decade. We have a 3.5 year time line. So it has to happen now. And then we will see when is the time where we have enough demand that really triggers that, but we are not long from it.

The next question comes from the line of William Mackie from Kepler Chevreux. .

Two, please. Firstly, on Power Solutions profitability, when we look at the operational leverage on a top line basis, it's close to 25% in terms of incremental revenue versus the change in profit. But there's a shift in the mix between onshore and offshore. So can you throw any more color around how the delta in profitability was driven. I'm guessing most of it is -- or nearly all of it is offshore, but perhaps you could throw some color on that, the direction of change. And then specifically, to what extent offshore still has further upside relative to your longer-term ambitions in terms of profitability of the offshore segment? .

Yes. Thanks, William. I will just sort of say positively here. It just shows probably what we have been speaking about for now 6 to 8 quarters of we have invested high numbers of getting it mobilized. We have get invested high numbers and also getting the ramp right. Looking back, absolutely the right thing to do. We are now seeing the benefit of it. but we still have also substantial still to take out. But it also shows that when you now have a business that is also running potentially close to EUR 1 billion a quarter. then suddenly you have a leverage in the business. But at the same time, when you then get your tack time and your efficiency is out on the manufacturing, then suddenly, there is a rather large leverage fast approaching what we also said getting back to a black number and also a margin that can actually be a positive to be seen. It hasn't taken away. There is still quite a lot more to be done and hint here is still that even after first quarter, offshore still sits with a red number when we get towards the year-end. The full year number will be read, but we will do whatever we can to fast approach a black number. So when we look into '27 with part of what we can do now in ramp and what we can see ahead of us we strongly believe that '27 will be with that black number on offshore. And of course, that gives us the leverage what we have been talking to, I think we like to be able to demonstrate it, but you are right here. If you assume there was only offshore, there will be a little -- that will be 1 dimensional from your side. So I will say onshore is proving to -- with the mix, the countries we are delivering in, it is actually proving also contributing to that 500 basis points but materially of the 500 basis points comes from your offshore that you are right.

The second is to delve back into service after your 5 consecutive quarters of developing your turnaround plan. Can you throw perhaps some more light on the evolution of the KPIs in terms of the backlog of outstanding work to perform or the scale of the fleet that still requires rectification work and perhaps specifically on the numbers, a sense of what the drop in costs was that you called out quarter-on-quarter within service. .

William, that was almost in a cash category of getting a number of questions into one, but let me just put it like this. When you are able across things like this, on a comparison to take something like 10% cost out in a quarter. That means also now we are getting to the meat of what the recovery is about. It's getting to the optimization. not only by site, but also what is the variable and potentially mobile work parts of technicians. So we are getting much better in that. Part of that is better to organize getting into the sites get better in a lot of ways and also sourcing the parts and others. And then I will say, we got some stickiness. We now know exactly what parts of the world are we still what I will call a high alert. We operate with something called hypercare sites now where we have a little less than 100 sites globally, but they sit in a less than -- I will say, less than a handful of real countries where we then operate hypercare because hybrid care comes from the name, which is here is an imbalanced cost allocation or there is an imbalance of liquidated damages of availability and other stuff. And that William has now also narrowed our way of running some of this. But what -- so in reality, some of it is really, as you can almost hear homing in on certain sites in the portfolio. But I will say here, the other thing that really tells me is that we now have enterprise processes for costs and how you equip yourself across the operations. And then on the commercial reset. many similar likes of what we did in Power Solutions back in, yes, '21, '22. And therefore, that I hold a lot of regards, but it is -- yes. Yes. I got to be surprised. Maybe we should have addressed the commercial reset earlier, but now we are doing it and it's catching momentum because we got enough competencies and experience from the power solution of how to get it done.

We now have a question from the line of Ajay Patel from Goldman Sachs.

Thank you for the presentation. I have 2. Just on the working capital movements over this quarter. Is any of that to maybe derisk and buy ahead of hand for any critical components that may become constrained as a function of the conflict. Is there a derisking element in this cash flow number? And does that -- how far would that be out just to give us a sense, if possible? And then secondly, on ramp-up costs offshore, how much of a drag was it on offshore margins over the first half, I'm just thinking relative to the second half, how much of an uptick that might present. There's clearly going to be a lot of moving parts this year. .

Thank you. Let me take that. The first 1 on working capital. As Henrik is talking to our supply chain team has learned a lot from last time. and are working with the various tools and mechanisms that you can do to deal with that. Overall, explaining the net working capital, that is nothing to do about bringing things forward on inventory. That's -- the net working capital you see is the normal seasonality of the year. So yes, we have done that in a small here and there where possible, but you will not see it in that number. It's driven by the seasonality that we built and install a lot end of the year or the next part of the year. Your second question around ramp-up. Remember, the first, I think we were celebrating it when we had the first turbine standing midyear and last year. So of course, that tells you that throughout last year, we had a lot of ramp-up in the first half and basically, nothing installed or very limited. We had, of course, manufacturing going on, but that was ramping up throughout the year. So there is definitely a year-on-year development that you will see there. And you see that if you look at quarter 4 and quarter 1, the last 2 quarters, you see the level of what we can do in our manufacturing sites, and that's a good reflection of what you should expect. So you're correct in your analysis.

We now have a question from the line of Dantara from Bernstein.

I had a follow-up question on the U.S. and then 1 on offshore wind. So starting with offshore wind, obviously, the U.K. is a great market, AR 8 should also put you in a strong position. But I was just wondering, are you able to comment on any other markets other than the U.K. where in the next couple of years, you may see more orders, and Mark, Netherlands, Belgium, Taiwan, South Korea, any of these markets. That was my first question. Second one, just a clarification on the U.S. a follow-up to the previous question. So you're saying that the main hang up for you is not the 30 gigawatts stuck in DoD permitting. And I think previously, you have mentioned Section 232. So is it fair to say that once you have clarity on Section 232, the type the tax should flow a bit more openly on U.S. orders? Or is there something else, double it.

I don't know what you mean by which retain the worst order here. I think sort of U.S. orders are coming, also coming in. They're not coming in as usually informative as they normally would with location and who and others because people have become sensible of announcing that deeper. But -- so I will say here, main uncertainties in the U.S. for us, I will say the ones where you will see we are progressing is the ones where it's either conditional upon final offtake or something like that. The offtake market. As you can see in Q1, it's gone up again. despite what maybe a few people are claiming on energy prices, they are actually increasing across both molecules and electrons in the U.S. So for us, the thing you are focusing on is the argument of what potentially will in '29, '30 or '31 will slow down. And I think there, we have plenty of time to deal with that because that I don't think will in the current environment on the price of energy will survive that sort of -- we won't do that. We won't give you the permits. There are plenty of gigawatts already now ready to be executed fully permitted, inside states, inside the federal permits as well. So that one, I'm not so nervous of. So this is more about getting the finance, getting yourself organized just like you would normally assume. So we don't see that stop in the U.S. and as I said, I'm that much in the U.S. right now, and that's not what I hear from customers either, but you don't want to end in a one-to-one fight with 1 person that potentially doesn't like wind in the U.S. On the offshore, I appreciate your comment, and I will keep it from a market point rather than because you probably also appreciate we are confident we see the offshore upside. And we can also probably see that in a number of the main markets we are 1 and 2. And therefore, when we talk about markets here, I think -- what I really welcome it seems like European energy ministers have stopped competing with each other to have a free auction because everyone have now experienced a failed auction. So most recently in the Euro wind conference in Madrid, I think everyone are now fully onboarded in that offshore works with some kind of CFD across all of Europe. Holland has done, Denmark is doing it, but that means they are reissuing their auction design in Europe. So offshore Europe, very positive on, whether it's Ireland or it's Holland or it's Belgium or One day France will also adjust to it, but we'll see maybe they will be the last in the row. And then when we look outside Europe, yes, you're in Asia, you are in back in Korea. Japan has something to prove for themselves if they want to recover from the failed round 1. And of course, that we will try to help those countries if they want our input because we know the markets there really well. So if I look at it, we are fulfilling the offshore project we have in the U.S., but then I would say U.S. go silent, which not surprisingly but Europe will be plenty of things to do in the coming decade.

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

Yes. Also a few questions from my side. So the first question goes to the service division. And congratulations with the efforts you have made so far. Given those initiatives implemented, shouldn't we expect a better profitability rest of the year? That will be the first one. .

We keep the guidance, Claus, and this is a much matter of done some turnarounds in service business. We have a strong hold of the business right now. We are not letting any of that go, and therefore, cost out is still name of the game and getting in control. And when I now share with you that we have hyper care of a certain number of sites until we are in full control over that, Claus, I don't think you should start modeling anything else of that nature, not quarterly. So that's why we are repeating the year-end and full year guidance for the service business. But of course, it progresses well, and we are happy with that. That is also why we are internally giving us some momentum, but also some further commitments of getting this done within the coming 3 quarters. And there, I'm not so focused right now on 1 quarter's EBIT or top line. We want the business to run as a proper business where they are in control of their KPIs and the operational measurements. So that's the focus area right now. Yes, you know me by now, that's what really is on the agenda.

Sure. I mean I was not trying to give a guidance upgrade during this conference call, Henrik. It was more like all the things you're doing everything equal, underlying things should be improving in the coming quarters. So that was more what I was trying to hint at. .

I've had that. And as I said here, the commercial reset, as you will appreciate. -- that is going to increase the profitability at a certain point in time. Sure it is. And we have a higher renewal rate than we ever expected 4 or 5 quarters ago because the internal feedback was we would hardly have any renewables when we start having a conversation around renewables on different terms. And let us take the multi-brand something we can honestly say we should not probably not have engaged in, but now we're having it and most of the multibrands are transferring into something else cost plus or even just a spare part arrangement together with our partners.

So my second question, you just want to repeat, and I'm not hinting for a guidance or greater this call. But looking at the group level, you showed in a slide that the 12-month rolling EBIT margin is 6.1%. And with the improvement in offshore, onshore is doing pretty well in the service -- does it look -- what should drive full year margin in the low end of the range? .

I think if you were only sitting here in a little bubble and talking investors alone, then I'm pretty sure we could quickly fix something that would look slightly better, but we also have a world around us. And I think the world around us are probably giving us something that still could hit various parts of that guiding range, which is why we keep the guidance, Claus. So 6% to 8% feels comfortable in the current surroundings. But of course, you can sort of say if we were sitting in Q1, take away the following. We're not buying back shares if we were not feeling pretty confident of how we're executing right now. And as some of you also asked here is the offshore and the feeling around offshore is there for a much bigger relief. And that I think we can send a signal back to you and saying that's partly why we're also now buying shares back for the year -- for the third quarter. If you do that calculation, I will go from the bottom line instead if we have to distribute 40% of net profit to shareholders over this year, then we still have some shares to buy back outside also the EUR 100 million we announced today. And that's probably a focus area for us. I know you will then see if it's 7% or is it midpoint? Is it 7%? Or is it 7.2% or 6.8%. I can get to all of those numbers right now. But let's have that conversation a little later in the year, but I would much rather sit here after Q1 and feel we have had a good start than feeling that I needed to catch up on something.

We now have a question from the line of Henry Tarr from Berenberg.

I have 2, if I may. The first, just on the Power Solutions business. were the offshore margins -- do the offshore business effectively explain all of the improvement year-on-year. So onshore margins relatively similar year-on-year? Or was there some potential improvement in onshore as well? And then the second question just on the buyback. I guess, -- so EUR 100 million buyback, even despite the sort of weaker free cash flow. I guess we should expect that to continue as long as you sit with a net cash position, is that what I'm sort of taking away from the slides?

Let me take those 2, first Power Solutions question. I do believe it's a slight repeat of what we have said before also on this call. In general, this is -- the main driver is offshore. That explains the main impact of it. In terms of share buyback, I think also we indirectly are hinting this in. Yes. And as I said, and I showed the slide, right, we have graded out the quarter 2 to quarter 4 that we do it already in Q1 is a sign of strength and where we are confident as Henrik is saying with how the business has started and the business can carry this despite of, as you say, despite of the cash flow in the first quarter. The business can carry this, and this is a good sign of also where we see the strength of the good start and also how we look at the rest of the year. So with that, I think we take the last 2 questions.

We have the question from Lucas Ferhani from Jefferies.

My question was just on the market share you show at the start of the data from WoodMac. Obviously, we're seeing most of the Western peers lose a bit of share and then others kind of go from 11 to 25. So can you talk a little bit around what is happening there? You do talk about India and emerging markets, I'm thinking about a country like Brazil, for example, where you're seeing maybe other players come in, but when you look at your overall footprint, what countries maybe outside Europe and the U.S. that are relatively still strongholds for the Western on? Do you see maybe the pressure coming from the smaller players.

No, as I said here, that's always the thing when you have averages of that nature and you have individual countries of that nature. We generally work well with customers where we are in our main markets where there are markets coming in like India, like yes, part of Egypt or Middle East and others. We generally sort of say, if somebody wants to pass that with pricing that not even covering direct cost, Lucas, then that's not the game we are in. And if you want to do that, than we are fine. But governments generally understand the criticality of the infrastructure, the grids and others, which, of course, we have been guiding annuals off for decades. So we are fine with that. And then as I said, we had orders in Brazil. We had development parts in Brazil related also to Brazil developing their data center legislation. So game on. I mean I'm fine with that. And therefore, here, you should more -- as I said, you can drill on that slide. And you could probably find 1 or 2 negative arguments with some of you which share price outlook probably needs to find and others doesn't need to find -- but you know what, if I look at our backlog right now, it's -- yes, it's EUR 36 billion, and we are happy with that. And it's for me, and I joined in August '19 as the Chief executive, the best backlog I've had. So therefore, I'm literally a little bit relaxed on that market share because there's still some markets in there, which doesn't make sense to see and have a bad day over. So that's last question then, operator. Thank you.

So the last question comes from Martin Wilke from Citibank.

The question was just going back to the U.S. market. Obviously, the big butalbill has its 1-year anniversary in a couple of months from now. And I think we've talked in the past that the construction start deadline is not necessarily a sort of firm cliff, if you like, because customers can achieve it in different ways in organ the turbine. But any sort of updated commentary as to how we should think about -- how customers are thinking about achieving construction start? Just so we can understand how that may or may not act as a catalyst. And then related to that, there has been noise and actually a bill proposed by some Republicans in the last few days to try and reverse some of this the expiration of these tax credits effectively removing this cliff in 2030. I know there's obviously lots of partic to happen later this year. But is that entering customer conversations that it's possible that these tax credits may not actually expire in '29 -- in 2030?

I think here, there will be -- I mean, if you take the constant stream of also things that are potentially not right, I think I always say, Martin, the best way of addressing a market like the U.S. that has so strong fundamentals. This is about demand and supply of electrons and the price and the time of we win you can deliver it. Then you have in the U.S. right now a political arena and probably also an environment that includes emotions and as I'm also typically using a bit by repeating something that is not right, doesn't make it right. And therefore, we got to just plow through some of that. I think on the anniversary and other things. We know that if you're in construction, if you still have safe harbor, then of course, you're also able to construct some of the things. And I will say who the hell would stop something that is that attractive to supply your society with electrons that is in desperate need for new electrons. I don't know, but maybe that's why I'm business and not political person. So I think there is a lot to be done. There is a midway election coming up in November. I think both sides start seeing the realities of slowing things down or creating or pushing to an energy crisis. So that's why we keep doing what we do best, stay close with your customers and with your partners. And then I'm pretty sure we'll solve some of those obstacles that are thrown at us. And -- so at the current pricing of PPAs and offtake, both 10, 15, 20 years, they stopped worrying about the tax credits and other stuff because it is so attractive anyway. So that's actually fundamentals of U.S. right now. Okay. Thanks for joining this call. And again, here, thanks for all your attention and support as well. I'm sure we'll see many of you over the coming days. So a good start to the year. Looking forward to the next 3 quarters together with you, and thanks for our Q1. Thanks.