Anders Runevad - Group President and CEO Marika Fredriksson - EVP and CFO

Kristian Johansen - Danske Bank Casper Blom - ABG Akash Gupta - JPMorgan David Vos - Barclays Claus Almer - Nordea Markets Fasial Ahmad - SEB Phuc Nguyen - Citi Group Klaus Kehl - Nykredit Markets Gurpreet Gujral - Macquarie Pinaki Das - Bank of America Merrill Lynch Jacob Pedersen - Sydbank Sean McLoughlin - HSBC Mark Freshney - Credit Suisse Alok Katre - Societe Generale

Good morning, everyone. Thank you for your interest. Thank you for calling in to this Full-Year 2016 and Q4 Earnings Call. As usual, it's me and Marika here, and also part of the IR team. Let me start with the usual disclaimer slide and then go straight into the key highlights of 2016. All in all, of course, a very solid execution leading to record high financial and operational results and, of course, a year that I and the rest of the management team are extremely satisfied with. Looking at some of the highlights then. Full-year guidance, met on all parameters, on the revenue, EBIT, free cash flow and investments. Also very satisfied with the high order intake of 10.5 gigawatt across a further three countries, again a testament of global reach. Also leading to the highest backlog ever for Vestas at €19.2 billion, very high ROIC at 265%. Also the safety performance continued to improve both year-over-year and compared to our internal targets. We recommend a dividend payment of DKK9.71 per share and a total of DKK2.2 billion per share almost a 50% increase year-over-year. We have also initiated a share buyback of €95 million based on the expected net proceeds from sales of the office building in Aarhus here in Denmark. So overall strategy firmly on track, good execution and as normal this part of the year we have also done a revision that an update that you can say that we do of the strategy every year and I will come back to that as well. But let me start then with all those end markets and then hand over to Marika for the financials. So looking at Q4, strong order intake at 4.5 gigawatt, up 40% year-over-year for the quarter. Average selling prices remain stable. We saw an uptick at 0.95 in the quarter very much impact by scope mix and to some extent FX. Looking at the order increase, the main contributor actually about 70% to the order increases for U.S., Australia, Germany and France. All in all of course a very good development and especially in the U.S. that's where we’ll come back to. As I said we feel that prices remain fairly stable. We saw an uptick in the quarter and continue to be a competitive market. We definitely have to fight for every order but good to see a stable development. Should remember as usual that the price per megawatt depends on a number of different factors, turbine types scope and of course in the end of the day the uniqueness of the offering. Looking down at orders for the full-year at 10.5 gigawatt, also good to see that we saw a growth from all our regions starting with Americas up 5% for the full-year and 84% in the quarter driven very much by U.S. but also good activity levels in markets such as Brazil, and Argentina fairly new market. Of course in Q4 the big impact was the PTC orders in the U.S. EMEA that I talked a lot about being a stable region, I think very encouraging to see orders growth of 32% year-over-year. Of course Norway with a gigawatt had a significant contribution but also very good activity level in many countries such as Germany, France and Sweden. And those are the same markets actually plus U.K. in Q4 that drove the growth of 56%. There was also good improvement in Asia-Pacific from a considerably lower level but up 10% year-over-year and 72% in the quarter driven by Australia to a larger extent but also China almost on par with 15% from an order intake point of view. Looking at delivery then up 29%, so really high activity levels throughout the year and again also encouraging to see that actually for the full-year all regions contributes to the growth. Starting with Americas up 44% for the year, 62% in the quarter, a very good development in the U.S. also on the delivery side, as well as several countries in Latin America. In the quarter, then 64% of course also helped by part of the PTC components that were delivered in Q4. EMEA up 9% year-over-year broad-based as I talked about the Nordics, Germany, offshore to 3 megawatt platform here I should say and U.K. to some extent Belgium slightly than offsetting - more than offsetting the decline that we saw in Poland over the year. In Q4, a decline very much so that we had an extremely strong Q4 in '15 in Poland. Also good increases again from lower level in Asia-Pacific, plus 83% for the full-year and over 100% in the quarter, very much driven by China. We took then orders in further three countries across six continents in 2016 and we also installed in one new country taking our total footprint now to 76 countries and signed orders into new countries over the year. So, global reach important leverage for Vestas and also important to continue to build on. Looking at the backlog, as I said record high at 19.2 billion, 2.1 billion improvement in the quarter and we saw an increase on the turbine side of 1.3 billion, and on the service side of 0.8 billion, so again a good development. Across U.S. a lot of interest in the U.S. markets and I must say I'm really pleased with our performance and deliveries of approximately 4 gigawatts during the year and an order intake of approximately 3.5 gigawatt enabling a significant future potential. As we expected and we talked about in Q3, we had a very busy quarter in the U.S. up to - I would say the last day of the year and we actually had a very busy year also on the delivery side and our factory - from our factories in Colorado were up considerably on delivery also compared to 2015. On the auto side, we took orders on PTC components of future product pipeline potential of 1.64 gigawatt including repower and then normal orders or non-PTC components auto of 1.8 gigawatts. All in all for me a very satisfying result we have over last year improved, our markets share in the important U.S. market and as I also talked about in Q3 our focus was on the order side to qualify the maximum potential in this market. If you look at overall market expectations and again days or numbers from MAKE consulting as were the numbers that we referred to in Q3. MAKE has a number of the overall market of 4.5 gigawatt in PTC qualification and then around 10 gigawatt of starter construction and estimate then the markets approximately 40 gigawatt again MAKE numbers from 2017 to 2020 but of course as you can see on the numbers there are all considerably upside to that the estimates looking at the qualification and start of continuous construction. But I also think it's a fair estimate to assume that there are some over qualifications in the number of PTC components. So a very good, very stable market with good visibility and of course now we need to maximize the potential of the qualification that we have secured. Looking at joint venture that we have for offshore together with Mitsubishi heavy industry, we saw another good year with had that both building the backlog that now is a 2.5 gigawatt year-to-date or year-to-yesterday I should say announced orders was at 1.4 and preferred supplier of 1 gigawatt. From an execution point of view also, a year with a lot of activity where the joint venture started the manufacturing ramp-up and delivered - started to deliver I should say, because it's not completed the first 8 megawatt project. And with that manufacturing ramp-up we also employed about 500 additional people. With that, I leave over to Marika to talk about financials.

Thank you, Anders. And again what Anders have gone through with you in terms of good activities throughout 2016 is also well reflected in the full year P&L and here you see revenue increase of 22%, and then more importantly you see the leverage on the EBIT, so we have an EBIT in absolute numbers increasing by 65%. Gross profit is up 41% year-over-year and well reflected in the gross margin in percentage. So we're delivering 20.8% compared to 17.9%. Gross profit is driven by the higher revenues, so very good absorption in the production yet again, very favorable product mix and improved average margins and also coming back to the stable price development that we see in the market. Fixed cost is well under control, so we have an increase 9% compared to the revenue increased of 22% so again a very good leverage as you can see on the EBIT line. You also see the income loss from joint venture of 101 that is both a reflection of the operational result in the joint venture but also you have certain degree of elimination in that number as we have discussed before but this is - I’ll say a reflection of the ramp-up of the V164 and therefore also the depreciations in on the same technology. Q4 income statement is also an improvement compared to last year. You see revenue up 9%, gross profit up 16%, and EBIT up 25%. So, yet again a good leverage on the performance of the company and you also see that we have delivered 15.2% compared to 13.3% last year. So, again a good improvement in the overall margin. Deleveraging on the SG&A continues to be a focus area and obviously important that we continue to control and I think we have proven that for the last few years that we manage growth well without increasing the cost base. So, we are now down to 6.9% of revenue in Q4. So, I would say a very good achievement in the company so, again well under control. Service business continues to grow. You see a growth of 15% that is including both the two acquisition and organic growth and more importantly despite two new acquisition and integration of the two in 2016, we deliver a margin of 17.2% so, more or less flat compared to last year which I think is a great achievement and the integration obviously is well on the track of the two acquisitions. The order backlog and as mentioned is growing at a good satisfactory levels. Balance sheet continues to be strong. You can see the net debt performance so, again a very good improvement. We’ll come back to that later. You know that we got a lot of orders in late in the year and considerably high amount of prepayments i.e. down payment. Networking capital therefore also because of the prepayment is at a very good level and extremely good level that is also well reflected in the cash flow for Q4 which again I will come back to. Solvency ratio is well within the boundaries of the mid-term 32.1% and we have stated, we should be in between 30 and 35 so, again a good level. Change in working capital, over the last 12 month we ended the year at a negative of 1.9 that is again a reflection of the prepayments that you can see also for the last quarter and obviously have a great impact on the cash flow and networking capital, we are not expecting to be at this low level, I know we’re not guiding for the networking capital but it is an unusually good performance because of the late incoming payments in the latter part of the year. So, I would say that together with the cash flow is probably - a combination is a fair assumption for 2016 and 2017. So, we will make deliveries in the beginning of the year but we got paid late in 2016 but again well under control and a very good performance. Warranty provisions and Lost Production factor, we continue to consume a low level of warranties. You can see that we have increased so we are up 2.2%. This provision is obviously reflected in the Q4 numbers and this is - we have chosen to increase because of very high activity level, more outsourcing, is no specific reason for it and we will go back to the normal 1.9 is the expectation for next year or this year's rather. Lost Production Factor continues at a good level below 2% so, again the good work really pays off. Cash flow statement for the full year, here you can see what we have been striving for is obviously to continue to improve the earnings and cash flow from operating activities continues to improve for the full year. And the change in networking capital here you see a more reasonable level, you'll see the difference in Q4. Cash flow from operating activities obviously also improved and at a good level. Investing activities is again what we have guided for and therefore you see free cash flow excluding securities is 1564 and cash flow from financing activities which is share buyback program and dividend that we paid in 2016. Q4 here you see the change in networking capital, so you see a positive swing of 638 that is a reflection of the later down payments that we have received in the year, some of that will be now delivered in Q1. So that again is why I think it's a more appropriate to look at cash flow as a combination in terms of 2016 and 2017. Free cash flow for the quarter is for obvious reasons very high and you see here the later part of the financing activities i.e. the share buyback. Total investment increased compared to 2015 by close to 200 million. The main reason for CapEx is investing in blades as and also technology as we have them previously, but you see some extraordinary items and that is the acquisition of Availon that materialized in Q1 of 2016, and also the transfer of the facility in Lauchhammer from leased to own building which have also reduced the cost. Capital structure continue to be met so we have a net debt to EBITDA well below 1, we are actually negative 1.8. And the solvency ratio is again well within the boundaries of 30% to 35%, so good performance on the balance sheet. Capital allocation with the dividend per share proposed in DKK is for full year 69.71.And the dividend payout ratio as you know it states 25% to 30% of the net profit. We are proposing the high level. This needs to be approved at the AGM, but this is the proposal from our side. And we also performed a share buyback program late 2016 or not from August 2016. And we are now as we are selling the offices in Aarhus. We are suggesting a share buyback of €95 million to start from February of this year. So again that is the proceeds from the buildings sale in Aarhus. The overall methodology when it comes to share buyback has not changed. We will release that at the later part of 2017. Return on invested capital continues because of extremely efficient balance sheet but also good earnings continues to grow, so we are at very high level of 265%. So, obviously very good improvement compared also to Q3 that was at a high level, so very efficient on both P&L and balance sheet. By that, Anders will tell you more about the strategy.

Okay. As I'll start to say this is of course time of the year where we do an update on the strategy and investment that we think are needed. So, starting with overall picture that some of you have seen before, so looking at long term forecast from the International Energy Agency. We see very solid forecast for renewable and especially for wind. Renewable energy is expected to be about half of the additional capacity up to 2014 overtaking coal around 2013 and we in this forecast to take the majority of this growth. The main drivers for this also remains, so in OECD it's a replacement market where the speed of the replacement depends on financial end of life of the existing generation and on CO2 target reductions. Those are the main drivers on the timing in the replacement market. While in non- OECD the new build is to cater for the increase in overall electricity or energy demand. We also saw that wind estimated to approximately 18% of the newbuild capacity last year and a global penetration of wind around 7% today. The key to drive growth is of course wins increasing competitiveness and already today wind is on par or below fossil fuel in many markets and it's the most competitive renewable energy technology. We see that on a global average base but also then within different regions where of course the leverage cost of energy varies greatly not just for wind but also for alternative sources. We have seen a very good development in the last five years. For example, the levelised cost of energy in the U.S. has decreased by more than 50% in the last five years and we similar development in other markets and a global average according to Bloomberg New Energy Finance estimated around 15%. US$3.1 trillion is expected to be invested in wind up to 2040 and we expect positive development in levelised cost of energy for wind to continue going forward. Looking a bit more in detail into different segments of our business on the markets for cost up to 2020 and days off forecast from Bloomberg New Energy Finance and from MAKE. Onshore wind up to 2020 and we say - stable high volumes in both forecast is up in this time period. A slight decline between 2016 and 2017 and then a global CAGR around 3% up to 2020 and that's a - that is if I take the average of the two. Of course China is forecasted to show a slight decline and if we exclude China that of course have a fairly big impact on the number, the CAGR from 2017 is around 4%. Again these are forecast that we think are relevant to use for us in our planning of the strategy. Looking a little bit more into the different regions and we can say that in Americas the growth is primarily driven by the U.S. market and it's the current PTC structure drives the demand is the main driver for the demand from 2017 to 2022, 2023. But also generally good support in several markets in Latin America, Brazil, short-term challenges but the mid-term potential definitely in place, giving an overall CAGR for Americas around 5% again referring to the same analysts. EMEA continue to be a key driver for the wind industry and definitely for Vestas as well. In Europe it is the 2020 and 2030 renewable energy targets that provide stability. We say general move to auctions in the different markets and that is by the way not just in EMEA but globally and Germany will transition in the 2017, 2018 timeframe. Good growth opportunities in Middle East and Africa from a lower base and then on repowering we see that market to start in this time period primarily in Germany and Denmark and also actually in the U.S. and that's where we see the market during this period then more global off to 2020. In Asia-Pacific the forecast is flattish for the total period but are some large changes within the different markets. China is addressing curtailment challenges and therefore we see a reduction in the overall volumes in China but still on a good healthy level and a commitment to wind remains. In India, there are ambitious targets in place and this is also market that starts transition to auctions and will start with the first auction this year scheduled for March. We see good growth in Australia coming back and then a good growth opportunities in single market throughout the region, all in all compensated for the slowdown in China. So, that's onshore business. If we then look at services, we see and a good growth scenario. Again this is from MAKE consultants showing about 9% CAGR during the next 10 years. Offshore also is forecasted to show an impressive growth for a CAGR point of view, even if absolute numbers of steel small compared to onshore. The market will start and we have seen that in Northern Europe and over time then moved to Asia and we've seen activities in China and then more mid to long-term also to Americas. That leads me down to the overall strategy. We remain well positioned for these market trends and a strategy is on track. We have fine-tuned our activities to reflect new opportunities and changes that we see in the market. Our two enabling objectives are to deliver the lowest cost of energy solution that is really about the competitiveness of our wind turbine portfolio and our service portfolio and best-in-class global operation. So that remains. With this in place we can deliver on our objective to be the leader in wind power solution and service solutions. We have adjusted our variations somewhat to be the leader in sustainable energy solution. The reason for this is that we see more and more requests from our markets, from our customers to participate in projects and activities with the aim to increase the penetration of wind that could be great integration projects, wind storage projects, and how we can optimize the energy distribution, the energy control system by for example combining wind, solar, hydro and storage. For us we're always with the aim to optimize and penetrate wind further. The definition of the global leader remain for us it's about leader in revenue and the underwriting best-in class margin and of course be the preferred partner to our customers. If you look at the execution on our strategy and the key achievements 2016, I will say that we do great progress on grow faster in the market. We had a 30% growth in delivery during the last year and also a record high 15% year-over-year improvement in orders. On the service business we are delivering on our mid-term strategy of growth of more than 40% and during last year as you heard revenue increased 15% and order backlog was up at 1.8 billion and we had also further strengthen our capability in multi brand services. On the lowest-cost of energy solution, we have the broadest product portfolio in the market on 2 or 2 and 8 megawatt platforms. We continue to improve the energy production for example the 3 megawatt that we've seen improvements of 35% - up to 35% since launch. Our industrialization and cost out targets are met and we have delivered to our joint venture the world's most powerful turbine in the 8 megawatt platform. And we continue to invest in innovation, multi concept rotor such an example and obviously a new technology that can enable further reduction in levelised cost of energy. Best-in-class operation it's all about margin improvements and how we have delivered on both EBIT and gross profit improvement during last year. So to summarize, all different business area and how we see them and we see stable growth in the planning period up to 2020 for the onshore market and of course here our objective remains to grow faster than the market and to do that it will be important to continue to gain market share. In the service business as I said, we see an overall high growth in the market and our objective here is more than 50% growth by end of 2020 compared to 2016, so a high ambition to grow faster than the markets also in the service area. And in offshore where we have a partnership with MHI, the objective is to double the revenue over the next three years and a pre-tax profit breakeven by 2019. And of course from a CAGR point of view this is also an area where we see solid growth. As always for us it's important with the execution of the strategy and to do that we need to continue to both build on and leverage our key differentiators. And that will continue to be the global reach, again good progress on new orders and delivery during last year. It's about technology and service leadership that we'll deliver the lowest levelised cost of energy through the range of turbines and service offering and also that we actually have the largest R&D investment in the industry. And it's about scale and with largest installed base of 82 gigawatt now in 76 countries, 71 gigawatt under service and the date they insight we get from monitoring 32,000 turbines. Our ambitions remains on revenue to grow faster than the market and be the market leader revenue to generate best-in-class margin on the ROIC over the cycle of double digits free cash flow positive and we have also maintained our capital structure and distribution policy targets. So, with that we go into outlook for 2017 and in 2017 we expect another year with solid financial performance, with revenue in the range of €9.25 billion to €10.25 billion with an EBITDA margin before special items of between 12% and 14%. A total investment approximately €350 million and a free cash flow of minimum €700 million and then we should also say that we have accounted for the sale of the building in both the investment numbers and the free cash flow numbers. And on the service business no change, we expect to continue to see growth with stable margin. So with that, we move over to Q&A.

[Operator Instructions] Our first question comes from the line of Kristian Johansen from Danske Bank. Please go ahead. Your line is now open.

Thank you so much. My first question is regarding the U.S. outlook for 2017. Going back to your Q3 conference call in November, you stated you expected lower activity in the U.S. in 2017. So can you update us on whether that is still your outlook, and also, whether you have got more or less positive on the activity level in the U.S. for 2017 compared to how you saw the outlook in November?

Yes. I mean what we have refereed to very clearly in Q3 was the external market that is expected on the delivery side a bit lower delivery in 2017 than in 2016. And we also confirmed that we thought that was a reasonable planning assumption. And I think as far as I've seen from the external numbers and also the external numbers I referred here, that's still the case. It's not the significant lower activity level in the overall market but expectation is that it will be a somewhat lower activity level. Then for Vestas, I mean our guidance for 2017 is the guidance we gave, so that's our best estimate overall for next year. But I have to say overall in the U.S. and I mean there are still quite a lot of unknowns of course exactly how the delivery will be phased over the years. But I remain as confident as we were in Q3 that U.S, will overall be the second largest market in the world for wind, it will be a very stable market now in the current PTC cycle. And then exactly how it will pan out over the years. I think it's still very hard to predict.

But just to see if I understand correctly, so have you also included a drop in your U.S. deliveries in your guidance for 2017?

I mean we haven't guided specifically for specific markets for 2017, we've provided an overall guidance on revenue for 2017.

All right, fair enough. Then my second question is if we stick on the topic of your revenue guidance, you're expecting revenue growth between minus 10% to 0%. Your backlog for projects at the end of the year is up 8%. You're expecting increasing service revenues. So the expected drop in your project revenues must be even larger than what you're guiding for the Group. So can you just help me understand why you're expecting this drop despite the backlog being up?

I think there were many questions in that, but the guidance is our best estimate for time being. And as you said the apprentice is very close to this year and lower and this is drop in revenue. I mean if I look at the overall market that I talked a lot about and looking at again external forecast is we see an expectation of a certain drop in delivery. I mean it's not major at all, but there is an expectation that the delivery globally can be a bit lower in 2017 compared to 2016. So of course that's one input for us. The other input is of course as usual. This is a project business with the same profile as usual. Some of the projects that we will deliver and get - reach customer milestones from during the year will be the revenue for 2017. So, of course then we have the normal uncertainty when it comes to project completion during an expected very busy second half.

Okay. Thank you very much.

Thank you. Our next question comes from Casper Blom from ABG. Please go ahead. Your line is now open.

Thanks a lot. Also a bit of a guidance question from my side; you're changing a bit the way you guide, where you used to have this minimum guidance and now you're giving us a range both for the top line and for the EBIT margin. How should we really read this? Is the bottom of this guidance sort of comparable to your old minimum guidance? Is that a fair assumption? And also, I know it's really difficult to quantify, but do you feel that you are more or less cautious in this type of guidance than you were in the old one? That's my first question please.

I mean the reason why we change to range is that we felt that was the most appropriate guidance at this point in time. I think it's fair to say that we also see in a sense maybe bit more stable market going forward than what we've seen before. And of course we continuously, hopefully improve our accuracy over time as well. And actually also to be fair we have gotten feedback on the minimum guidance that has not maybe being completely understood all the time. So we also have received feedback on a preference that we go more to a range. So a number of different factors that we feel that this is appropriate way to guide for now. And I will not comment about anything within the range, it is range and there is no change in people, it still may - and may come.

Okay. And then a comment or sorry, a question regarding the U.S. and the different types of PTC qualification orders. We know that you've now announced some Safe Harbor component orders. Can you give some sort of flavor to what do you think is the split between what is PTC Safe Harbor and what is continuous construction orders?

Yes, I think that is actually really, really hard to say. I mean as I think I said many times also in Q3, our focus in Q4 has been very clear and that is to maximize all our share of the available orders independent on - if the customer preferred one in front of the other. So, I mean that's been our focus and I think we've been successful on that. And then of course, it's up to the customers to decide what type of qualification they will use depending on the product they have and the timing they have, and I think that remains to be seen. I have no reason to change this sort of speculation we had before on the percentage, but I also have to caution that there are no further clarity on that today then before I think. And our focus has been on maximizing our potential going forward in this market.

Fair enough. Then just finally, a quick question maybe for Marika. Can you give any sort of guidance to the contribution from the joint venture in 2017? Will this start to be a bit better?

Well, I think we have said something very softly and in 2017 we will continue to see the ramp up. We'll also continue to see consequently the amortization or the - of the R&D or the V164. We are expecting a breakeven EBITDA for the joint venture not until 2018 and a positive net profit in 2019. So nothing specific on 2017, although, obviously depending on the volume in the year or the revenue in the year we will see the development, but not a positive impact on the EBITDA in 2017.

Okay, but maybe just better than the impact that you've seen here in 2016?

It's obviously - I think it's - to be very specific you have around one-third is the eliminations that we have talked about previously and two-thirds is really operation. So, yes we are looking for that. Thank you.

Thank you.

Thank you. Our next question comes from Akash Gupta from JPMorgan. Please go ahead. Your line is now open.

Good morning, everyone. My first question is on pricing in all Q4 orders, and you said that it was stable overall, but maybe if you can comment by regions because we had one of your U.S. competitors saying in their Q4 conference call that negative pricing in Q4 accelerated due to PTC dynamics, so maybe if you can make a comment. And then I will come back for my second question.

Yes, I know but of course I will not comment on what our competitors say on pricing, I think that has to stand for them. As I said, I mean we see a stable pricing and as you can see on our average selling price and order intake which is actually so a bit of an uptick in Q4. Of course as you know we had quite a lot of U.S. orders in the quarter, but we also had a lot of orders from other markets. So, I mean overall - we say the trend being fairly stable and as you can see also in our report. Having said that of course it's a very competitive industry for sure and as I said before I mean we definitely have to fight for every order that we take in. But I mean and then I can't really comment on what the competition is feeling.

So, basically, you haven't seen anything unusual in pricing in U.S. orders, is that a fair assumption?

I mean we don’t give any pricing on specific regions, but I think you can look at the numbers you know where we took orders in Q4. So I think that should tell you some.

Yes. And then my second question is also on the U.S.. If you can talk about how much localization you have in terms of local content, and then potential impact from any border tax or maybe reduction in corporate tax?

Yes, I mean of course we have the complete manufacturing capability in the U.S. So of course we produce all our deliveries basically in the U.S. Colorado factory. So and - that also goes from components absolute majority of also the components in the turbines are U.S. manufacturers. So a very, very high degree so that is of course good and as you can see they have been very busy and we have been very busy scaling up that production both Nacelle blades and towers in the U.S. And we also have the capability to introduce our newer products into the factory set up in the U.S. So we have the flexibility they are also to balance if the markets are wishes, so to speak more three megawatt competitor, two megawatt or new two megawatt platforms as well for that matter. So and actually from an employment point of view U.S. is our biggest market. We are close to 5,000 employees in the U.S. which is more embraced than in any other countries for Vestas including Denmark.

Yes. And maybe a quick one on organic growth guide, organic growth for services. Can you talk about what was organic growth in services for full year 2016?

So rather it’s around 8%.

Thank you.

Thank you. Our next question comes from the line of David Vos from Barclays. Please go ahead your line is now open.

Yes, good morning. I have a question on the backlog, and in particular on the margin quality that you perceive in the backlog. If you can comment on that, is it going up, is it going down? And then, I'll have another question after that.

Well if you look at the order backlog I mean we have our methodology when it comes to taking in orders or taking order or not or rather improving them and consequently we have a good quantity of our order backlog.

Okay. But I was more interested in the sequential development commentary if that's something you have to mind.

No as I said I mean we’re not commenting specifically on the margins, but as we have rigorous process in how we improve the orders and that includes - the pricing and consequently the margins. We have a good quality on our order backlog overall otherwise it wouldn’t be in there.

Perfect. And then the second question around JV here. And I don't want to labor the point, but I'm a bit surprised to see that thing only break even in 2019. How is the gross margin development there? You can probably see where I'm going at, right. Are these orders taken in at prices that are perhaps a little bit lower than they would be in a steady state? Or is this really an accounting issue whereby you just have an enormous amount of amortization and appreciation running through a business that's just not scaled up fully yet?

Yes, of course I mean without going into the data and the margin, but where we are in the timing of the entrants so it’s of course very much your length of description that I mean this is still not a run rate business. I mean this is a more of a project business where of course the entrants will have both big cost in scaling up the manufacturing, delivering the completely new turbine amortization on R&D without much revenue. And of course there a lot further cost out possibilities in a new platform once you get into a bit more steady-state on a run rate on delivery.

And are you at liberty to say what a run rate looks like in terms of annual deliveries?

No, I will not go into specific run rate margins into offshore business I mean of course or be active for the joint venture longer term yes of course - that I should be empower with the onshore.

Okay. Fair enough. Thanks so much.

Thank you. Our next question comes from Claus Almer from Nordea Markets. Please go ahead. Your line is now open.

Thank you. Also, two questions from my side. The Q4 project margin seems to be somewhat better than we've seen in average in 2016. Can you try to explain what's behind that performance, and also, how the performance in Q4 is compared to the backlog? That will be the first one.

Well as I think answered previously there are no standard margins when it comes to Vestas because you have a blend. Overall, we have continued to improve the margins because volume plays a big role and obviously we have a good absorption. We are also taken the cost out we have the mix question that would always be there which is a combination of all of them. I mean Q4 is good performance but I think overall 2016 was a good performance and you’ve also seen the guidance which proves that we continued to have good quality of our orders and consequently the order backlog is very satisfactory. So there is nothing particular.

Marika, so should we look at 2016 as the same level we see in the backlog, or how should I understand your answer?

My answer is basically that I am commenting on the gross margins, but having said that you see that we have improved the overall gross margins year-over-year we continue to have as tight monitoring of the approval of projects and obviously margin quality is one important factor. And I have said that we have good quality on the order backlog. So that does mean that we will not continue to improve from there, but I don't see that we have a big hit on the margin side.

Okay, thank you. And then the second question, one of the slides showed that margin improvement is part of the strategic direction of Vestas. Does that mean we should factor in margins to increase going forward, or…

I mean margin is focus is important because that's obviously how you get the overall leverage from your performance. So I mean that is part of the overall efficiency gains that we have stated in the operational excellence. So yes, focus on margins will be there and obviously we will try to further improve.

Based on the same revenue level, so it's not driven by leverage, but it's driven by underlying operational improvements?

I mean underlying operational improvements then obviously there are factors like the market that we don't control, but with what we know we will try to further improve the margins yes.

Thank you so much.

Thank you. Our next question comes from Fasial Ahmad from SEB. Please go ahead your line is now open.

Yes, hi Anders and Marika. A couple of questions from my side. Firstly, regarding Q4 margins, especially the gross margins, compared to the first three quarters of the year, the leverage in Q4 doesn't seem to be as high. Is that solely driven by the higher warranty provisioning in Q4, or have you also taken some other costs in Q4? And maybe if you could also comment on what specific events have triggered these higher warranty provisions in Q4.

Yes, and obviously the warranty provisions that we have made in Q4 have an impact but having said that, I still think that the margins that we managed to deliver of 20% is a good reflection of the overall performance in the year. And as I stated earlier, the provisioning is for nothing specific but we have a high activity, we have a global footprint. We also have some new technology, we're outsourcing more and all of the above led us to the conclusion that - and the assumptions to increase the provisioning in Q4. And as I said earlier, we will go back to the 1.9% in 2017 so it's for nothing specific but just general activities with investors.

New technology and new supply chain and so forth, but I mean it seems very strange that you hike the provisioning for one quarter and then you just reverse to the old level again in the coming quarters. Any comment on that?

No, I don’t think it's anything strange, we have done the assessment and because of - all of the above activities I think what we show is also that the consumption continues to be low, you see the LPF is below 2%. So we have done an adequate assessment - therefore then the provisioning so nothing extraordinary in that.

Okay. And then just one final question regarding capital allocation. You're making this small buyback program here in Q1, but you do have a quite large net cash position. Would that decision, what to do with that net cash position, come during the second half of the year?

Yes, but I mean we have also said that we will continue to invest in the business. I also stated that, yes the net debt is at a very high level at this point but also that we have a very unusual Q4 that obviously has increased and then we will continue to invest in the business, we will do the bolt-on acquisitions when we find them and we will consider share buyback in the second half of the year as we have previously done. What we have done now is that we do an extraordinary share buyback because of the sale, of the asset or the buildings in Aarhus.

Okay. Thank you.

Phuc, from Citi Group. Your line is now open.

My first one is on the average selling price of your order intake. I realize the first quarter was a bit special because of Norway. If I look at the second and the third quarter, it was below 0.9 million, and then fourth quarter, you are at 0.95 million. And I understand that part of that is weighted towards the U.S. orders. Is this the run rate we should assume for the follow up orders in the U.S.? That's my first question.

As I said before, we don't comment on the specific price development in different regions. We show the global average selling price in order intake and we have as I said in the quarter we see a positive development but that is - we can it is - this variations depending on scope for example more or less APC mix and then in the quarter also a bit of FX. So we're happy with that we see a fairly stable price in the overall market and then we say what the future will bring.

Okay, and my second question is also related to the U.S. market. From the conversations that you have with your customers, do you get the sense that there's appetite for new PTC Safe Harbor orders? In other words, are customers happy to take 80% of the PTC for this year?

I think that of course a very good question but I would say that remains a little bit to be seen. I think it's fair to say that of course the customer has been very focused in Q4 on the sort of period up to 2020 delivery and 100% PTC. So I still feel that will be enough appetite for 80% PTC, it's still fairly good level but I think it’s also fair to say that all the focus in Q4 has been on 1 to 100% PTC cycle and of course it's been a rush to focus on that for now. So I think that, as I said it’s a good question but I don't have a feel for that now. I think we have to wait a bit and say towards the second half of this year.

Thank you.

Thank you. Our next question comes from Klaus Kehl from Nykredit Markets. Please go ahead. Your line is now open.

Hello, Klaus Kehl from Nykredit Markets. Two questions as well. The first question is related to your strategy, where you aim to become the global leader in sustainable energy, which could lead you to add some new services. Is that something you could add organically, or would that require acquisitions? That will be my first question.

Now there is a strategy like before, it's about organic growth and then what we see happening in the market both from customer requests and actually also we see some tenders now being out is the combination of storage and wind for example. And also some hybrid projects with a combination of wind and other renewables and storage and from a technology point of view, we are also having cooperation with for example, storage providers and on how we can optimize the interfaces between all our wind turbines and those kind of systems. And also how we can optimize the energy management in new type of energy markets where you have a higher penetration of intermediate generation such as wind or solar. And so for us it's – answers to those requests and we think that they are very interesting request for two reasons, one of course - and the primarily reason is to further increase the penetration of wind, and also use more wind as a baseload. And secondly of course that it's an area where all knowledge from a technology point of view from the wind side again has a high contribution. So, and that is we said - want to reflect that in our long-term vision that we see opportunities in those areas but it's not any sign of that we are looking at acquisition outside our - our sort of wind space.

Okay, excellent. And then my second question would be we have talked about these provisions that you have made in Q4, but I was just wondering whether there are any other one-offs in Q4 that in any way has impacted the P&L numbers.

Well, I mean we do - as I said before we do a regular assessment in every quarter so it’s nothing unusual for Q4. We’ve definitely provided for warranties, we also have – I mean you have certain provision for bonus that could potentially impact the Q4 numbers, but it's nothing that we don’t do in any quarter. So, we have highlighted the provisioning for warranties because that’s a high number.

Okay. So no write-downs on projects or whatever that we have seen in other quarters?

That we would disclose in that case.

Excellent. Thank you very much.

Thank you. Our next question comes from Gurpreet Gujral from Macquarie. Please go ahead. Your line is now open.

Hi guys. Just a couple of questions from me. You mentioned a larger share of EPC contracts as one of the reasons for the order intake ASP increase this last quarter. Could you comment on whether this came from the U.S.? And, if so, what was the changes in the market there to allow you to win those EPC contracts? And I'll follow up with my second question afterwards, please.

Now U.S. is more typical supply only region and we don't see any changes in that. So, it wasn't significant but we saw a slight more percentage of APC, but that is more the traditional markets where you have a bit more APC. So and not significant in any way and then in the U.S., there was no change from previously, it's the supply only.

Okay, fine. And just on the topic of the U.S., have you noticed any changes from a tax equity financing appetite from your customers?

No, not really. I think - they are all speculations on - if the potential lowering of the corporate tax of what kind of impact that could have on the tax equity markets but - so there is definitely generic discussion in the market but nothing that I see impacted or customers appetite on securing PTC components as of now, as we also see in the fairly I would say, good intake of PTC qualifying components. But it's definitely a discussion in the market if that would mean a change in the customer mix potentially to the more bigger utility or a more bigger developer compared to maybe smaller developer. That is - it's possible that that could happen if the tax rate would be considerably lower.

Okay, fine. And my final question is again about the U.S. market. When you look at your customer base right now in the U.S., do you -- has there been a change over the last couple of years towards more traditional regulated utilities as opposed to independent wind developers?

Yes, I think that's correct as you say. We definitely - not a change but we - yes a change in the sense that I think we have wide in our customer base quite substantially in the U.S. and I think that is the big part of why we have managed to grow the market share as we've done during the past year is that we have widened the customer base - probably fair to say that a couple of years ago, our customers were mostly the well known key accounts - European based key accounts and have now managed to penetrate a lot further into the big U.S. based utilities.

Okay. Thank you.

Thank you. Our next question comes from Pinaki Das from Bank of America, Merrill Lynch. Please go ahead. Your line is now open.

Hi, many thanks. Good morning, everybody. Thanks for taking my questions. I've got a question around the U.S. and then I've got another question around input costs. For the first one on the U.S., ultimately, the way we look at it is, it depends on whether regulation in the U.S. is stable or not. You've had very good orders; that's clear. You expect a certain amount of revenue this year; that's also quite clear. But can you give us any idea about or any insights into how or if any changes you expect from the U.S.? Have you heard anything from the U.S. President's office? We haven't seen any tweet yet, but what is your feeling around whether the President is going to look at wind, maybe potentially change something, maybe look at diethyls, maybe even on the positive side include wind in the infrastructure plan? So any sort of idea around that would be quite useful, from your lobbying efforts and your interactions with customers. And a related question to that is also in 2017, are you expecting some inter alia orders within 2017 for 2017 delivery? And also at the end of the year, are you expecting any PTC component orders for the next cycle, the 80% cycle? So that's my first question around the U.S. The second question is a very simple one. We're starting to see some input costs rising in various items. Is that already factored into your margin guidance? Thank you.

Yes, that was a lot of questions in your first questions, but let me try to answer it a bit on the U.S. And I mean as we say it is that, I mean the mid-term driver in the U.S. is of course the current PTC cycle and we don’t expect any changes in that PTC cycle. We have not heard for our industry associations in the U.S. where we participate - together with customers and competitors. We haven’t - we don’t have any indication that that would be any changes through the current PTC rolling, we did a strong bipartisan support. So, and I think and I haven't had any direct contact with the administration. So I don't have any insights or I haven't read and trades on your question on trades that would indicate that there would be any changes in the current PTC cycle. So that is our planning assumption that the current PTC we will send the current IRS guidelines we will remains and what – the wind organization is also telling us and our internal people in Washington as well – is that they say that as the scenario going forward. So that's all planning assumption and I think if I hear what other players, U.S.-based players are saying it's very much in line with that. So then the second question was around delivery of components. And of course PTC components and as you know I mean there is 105-day delivery period from orders. So we definitely delivered PTC components during last year in Q4 and it’s definitely also fair to assume that we will have delivery of PTC components during the start of 2017 on the orders that we took in the later part of 2016. So probably fairly equal between the U.S. when it comes to delivery of the PTC components within 105 days. On the appetite for 80% where PTC components as I said I think it’s very early days I think it’s fair to say that the customer and the market really focused in Q4 on the current cycle. And had quite a lot of work to be done to do debt. So I think that remains to be seen I have seen some early estimates again from external sources so not Vestas estimate will make that showed a fairly reasonable potential on also PTC components towards the end of this year. But I think that that really remains to be seen.

Sorry, I was also asking about any inter alia orders that you might expect in 2017 for 2017 delivery, not just the PTC components.

Yes, I mean, of course, we’re always looking for in front orders as well in a year. I mean that’s obvious so but we haven’t, we feel we have an adequate order coverage for our guidance overall for the year. And of course we will continue to work on getting more orders and we will do as previously that once the orders are firm and unconditional than we follow our normal order announcement process.

When you say adequate orders, do you also mean the top end or just the midpoint?

I mean full range.

Okay. And the last question was just around the input costs, if you can give any insights on how you look at margins in rising input costs environment?

Well I mean that is something we’re mitigating and controlling on overall basis I mean that something you faced with it in a lot of countries. So I don’t see that should be anything and specific in the U.S. then we will follow if there any changes, but we have a very good footprint in the U.S. that we’re happy with both from our own production and assembling but also from a sourcing perspective.

Great. Many thanks. That's really helpful. Thank you so much.

Thank you. Our next question comes from Jacob Pedersen from Sydbank. Please go ahead. Your line is now open.

Congratulations on a fine result. You seem to emphasize a bit more that you want to grow your market share considering the more stagnant market looking forward. And now you clearly have above industry average margins at the moment. How is your view on compromising these margins in order to increase market share?

Yes, I think that we have actually had for the last three year a clear ambition to grow faster than the market and that remains and you're also right. As I pointed out that of course in a market that has – an overall market that is growing slower than before then of course market share gains will be as important as it has been for the last three years. So to grow faster than the market continues to be a key ambition, I think we have succeeded really well on actually both growing our market share and the margins in the last three years and that is of course a combination of many things the competitiveness of the portfolio, the cost out activities and the industry recession activities that we are driving. And then it's of course also depends on what the competition is doing. So, but those strategy is still profitable growth so I mean of course our ambition is still the aim to grow the business in a profitable way.

Okay. So, even if we look into a market that could become a bit more competitive in the future, you still feel confident on your margins of -- the guidance of 12% to 14% in 2017; that this is a level that you can hang on to?

I mean we of course feel confidence on our guidance for 2017 and the range we’ve given I mean it is as I said a very competitive market. And but I mean of course we have taken the competitive market into consideration when we do the guidance for 2017.

Thanks so much.

Thank you. Our next question comes from Sean McLoughlin from HSBC. Please go ahead. Your line is now open.

Good morning. Two questions from me. Firstly, on the guidance range, this new guidance style. Thinking about the bottom end of the range historically you've been able to beat and raise through the year, it looks like a roughly 30% drop-through on the lower EBIT on the lower sales guidance, so quite some decrease in profitability. How confident can you be that there is no further downside risk to the bottom end of this range and we can look towards the mid/upper end as your style over the last three years would suggest? That's my first question.

Yes, I mean the range is our best outlook for the time being, I mean you're right it's fairly broad range, but we are also fairly early in the year. And we expect to have the normal seasonality over the year and that means of course that in the end of the day it will be the some of the project that we are executing on. I mean we are of course basing our guidance on what we see and what we plan for in execution both when it comes through number of projects and margins in those projects but of course we always have the uncertainty of which projects falls in which period. And I would say that we have a good visibility on what we expect in the different projects. As Marika talked about, we have a good process on approval of projects that we walk-in through with of course do - because of the nature of the business of course we do forward calculations or not if not all of the projects that we have and we then check that with actual and we feel fairly confidence on our accuracy through forecast the different projects but we still have an uncertainty on the timing that we normally have. So, it is within those ranges that we guide for the business.

Thanks. I'll follow up on that if I may. What about the sensitivity on the free cash flow guidance which remains a minimum guidance on the top and the bottom end of that range?

I mean the cash flow is probably the toughest one for us to predict and I think you have seen that. We have guided for minimum of 700 but when you look at Q4 of 2016, the inflow of cash in really late '16 and we have delivery requirement based on those now in Q1 of 2017. So, obviously a more fair, more fair assumption would actually be to look at the two years in combination but with that 700 that we have now guided for we feel confident obviously otherwise we wouldn't guide for it.

Thank you. My next question on service. Is the integration of your service acquisitions complete now and do you expect to see a positive benefit to the service margin in 2017 as a result?

Well the integration is not complete, we have just been better and quicker at integrating the two acquisitions and that's why you see a very little negative impact from the two. We are delivering stable margins as we have said previously but the integration continues also in 2017 and we have never expected it to be finalized before end 2017 beginning 2018.

Thanks.

Thank you. Our next question comes from the line of Mark Freshney from Credit Suisse. Please go ahead. Your line is now open.

I have three questions. Firstly on MHI Vestas; if the business is loss making, I know that MHI have put capital in because you've met the milestones, but would there be any incremental capital you have to put into that business? Secondly, on the offshore business. it seems that every order or every other order you get, you're using a new version of the 8 megawatt platform, so is it actually possible to make money in offshore given that your clients are incessantly pushing you for bigger turbines? And thirdly, I know in the past, you've indicated you try and hedge out naturally or financially FX risk, but you do have a lot of fixed cost in Europe. The U.S. dollar is about 20% expensive versus the euro. I know you have been exporting complete wind systems on the 3-meg platform from Europe to the U.S. So is it possible for you to quantify what the positive margin impact has been from three years of euro weaknesses? Thank you.

Okay, let me try to answer on the offshore side first. We don’t expect the need for further cash into the joint venture with - on the offshore side. On the platform it's actually not the new platform, so it is the 8 megawatt platform and I think the good news is that we, that we have quite a lot of the design upgrade generator upgrades and actually a streaming - I would call it, maybe the technical paper would be a bit upset with that. But that we actually can get increase the nominal power output of the existing 8 megawatt platform and it's a similar activities as you for example say on the 3 megawatt platform where we have gone in a fairly quick time period from a 3 to now a power model 3.6 megawatts. So we see further potential there to actually use the same platform but get more output power and that is really the preferred method for us as we had when it comes to delivering a competitive product with a lower levelised cost of energy. And then on the FX, I will hand it over to Marika.

Well what we've said and continue to say is, we are as naturally hedged as well possibly can. In 2016 we had very little impact from - or translation impact from currency. Obviously in 2015 we had some tailwind in particular on the revenue and the opposite on the cost side. But we don’t foresee any big translation impact at this point and again everything on this transactional side we are either hedging or we’ll try to be as naturally hedged as we possibly can. Translation is nothing that we obviously can impact that will – as we account for in euros that is where it is. But transactional wise we don’t foresee any big swings.

Okay. So then, we’ll take the last question.

Thank you. Our next question comes from Alok Katre from Societe Generale. Please go ahead. Your line is now open.

Hi, thanks for taking my questions and congratulations for a pretty good quarter. Just to follow up previously, just on the margin side of things. The lower end of the range and the top end of the range, if you look at the revenue and the implied margin guidance that you have, then it calculates down to a 30% incremental margin, like my colleague said earlier. But that would then imply that there is basically pure operating leverage with no benefits from any variable cost reductions, etc. Is that just a conservative view of the way you're laying out the margins? Or is it reflective of the fact that you might have to pass on pretty much all of your available cost reductions down to the customers? That's one follow-up; and I'll lay out my further questions. Thanks.

Well, I mean I think that we have been pretty consistent in improving the margin and therefore kept a lot of the benefits for Vestas, which we are also obviously used as an opportunity to continue to invest in the products that are clearly been or very competitive. When you look at the margin range, I would say that we do obviously the assessments, if everything goes well over if we have some headwinds what is the likelihood in terms of both revenue and EBIT and that is what we have done is nothing more dramatic than that. And I would also say that when it comes to a range, we would always try for the higher end of the range but obviously this is a guidance and we have given you the range and we are at the beginning of the year. So we will see how it pans out but there is nothing dramatic, it’s regular business assessment that is weighted into our range marked guidance.

Fair enough. And then my follow-up, on the other two questions. Just on the pricing, you have said in past as well, and same for 4Q, that you're seeing stable pricing trends. If I actually just look back at the last two or three years, you're right: the ASP remains in that 0.9 million to 1 million/megawatt range. But over the period we've seen a big transition within the type of turbines that you're selling, from 2 megawatt to 3 megawatt. I am just looking at your annual report, and I think in 2016, you said two-thirds of the order intake was on the 3 megawatt platform. That's far more efficient, as you said, 35% more energy production since the launch. But still, the price on that platform, despite being such a big contributor to your orders, it hasn't really moved your ASP on the order side, which basically, would suggest to me that you're giving away most of the improvements, pretty much without being compensated for it. Or alternatively, the 2 megawatt is seeing a far more hefty pricing pressure. Maybe I'm not reading this right, but it would be great if you could comment on that front? It seems from the outside that the pricing's actually far more adverse than stable.

Of course you are right. I mean when I comment on I comment on average pricing per megawatt as stable. And I think of course also fair as you say that we and the rest of the industry of course has passed on to the market, a very big part of the increased production that we get with more efficient machines. And I think actually that is positive because of course that is what makes wind more competitive without a sources and therefore our ability to grow the overall size of the wind markets. So I think that equation has worked well for us and for the industry. And I must say I'm also very pleased with the development that we have done in Vestas when it comes to improving all margins both in absolute terms from the asset point of view, but also when I compare to the competition. So, of course it's always a balance to make sure that we try to maximize our pace of the pie, as well as that we have a competitive offering compared to other term by manufacturer, but also that we continue to take increasing share of the overall electricity market. I mean long-term that is the key driver for the growth in the market further improvement of their competitiveness of wind. And if we can do it that's really combination of more efficient technology and then on cost out and we can keep all fair share, I think that's equation that at least works for us.

Fair enough. Is it fair then to assume that the underlying price decline on a like-for-like basis for a similar sort of machine of similar variance is somewhere around the 3% or 4% range? Is that a fair…

That I don't quite understand.

Fair enough. Maybe we take it offline. Thanks. And just one final question on the offshore side. We've heard recently about Denmark talking about ending the subsidy on offshore wind, with a proposal apparently due to be tabled in the later part of the year. Do you see this as a risk for your offshore JV, given how strong you are in the Danish offshore market? But also the risk that some of the other countries then could follow suit, especially coming on the back of some very steep pricing for some of the offshore wind farms that we've seen in the recent past?

I think it's very positive that we start to see considerably low level of course we are not there. Also now from offshore and I think that we have actually contributed to that to a big extent because we develop a bigger turbine. And you have to remember that for offshore the equation change a little bit, the turbine is about 50% or maybe 60% of the total costs of an offshore project. So there is lot of other components in an offshore project that also have to be optimized in order to drive down the levelised cost so we are not the one to turbine. And I think Vestas or MHI, Vestas I'll say and also a competition in offshore has contributed quite a lot of the changes we see now in levelised cost of energy, we are developing bigger turbines. So I think of course like in onshore, the industry will grow quicker the less dependent you are on subsidies so that’s a positive then of course as we had everything else, we need to stay before the say overtime. And then if we have that, we can drive the business in a good way.

With that, we are out of time. So I would just like to thank you for your interest. Thank you for calling in. I’m sure I will see at least some of you in the next few days. Thank you.