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

Kristian Tornoe - Danske Bank Patrik Setterberg - Nordea Klaus Kehl - Nykredit Markets Mark Freshney - Credit Suisse Claus Almer - Carnegie Sean McLoughlin - HSBC David Vos - Barclays Pinaki Das - Bank of America Merrill Lynch Alok Katre - Societe Generale Jacob Pedersen - Sydbank Fasial Ahmad - SEB

Welcome to the Vestas A/S Q1 2015 Report Conference Call. [Operator Instructions]. I will now turn the call over to the CEO Anders Runevad. Anders Runevad, you may begin.

Thank you very much. Good morning, everyone. Thank you for calling in. As you have noticed, we changed the format a bit, based on feedback; this should work better for all of us. So the first quarter result, our usual disclaimer slide. So let me start then with the key highlights by saying that, of course, I'm very satisfied with the good start of the year and delivering a strong result in the first quarter. Actually, in many aspects we see record performance historically for a Q1. For example order intake; that was record high at 1.75 gigawatts. Also, very solid development in the order backlog; that stands now at €15 billion. Return on invested capital also at the highest level ever, at 44%. And also very good progress on earnings, with an EBIT margin before special items at 5.2%, up 2.1% compared to one year ago. Overall, due to higher-than-expected order intake year to date, of course also a greater visibility and a strong development of the U.S. dollar, we have increased our minimum guidance for the full year of 2015. So the agenda, starting as usual orders and markets, financials and then the summary with the Q&A. This is also the time of year where we see the results of external market analysts on market share in megawatt. As you can see from this slide then, three out of four analysts have Vestas as a clear market leader, with around 12%. So that is, of course, encouraging for us and something that we obviously follow closely. If I then go in and talk a bit about the market and start with the regulatory trend. I would say that overall we see the trends as clarifications ongoing; transitions from different support schemes; and, of course, negotiations around the different systems. In Americas, I would say there the update that has happened since we last talked is basically around PTC; and IRS has now clarified the continuous construction qualification method. A summary of that is that it's the same as previously, so just one year longer. So that, I think, is the easiest way to think about that. So if you qualify a project as continuous construction it's now prolonged for one more year. In EMEA, Germany, there is discussions on going to an auction system. We're still waiting for the detail on how that system will work. The first auction expected there end of 2016/start of 2017. In the Nordic, Norway and Sweden, we see the Government putting forward supportive proposals to increase the support for renewable which, obviously, is positive. In Poland also getting ready for a new auction system. Here the estimate is that that will be happening by the first half of 2016. In Asia Pacific there is currently an ongoing political discussion about the RET in Australia. As always, hard to predict the outcome, but it's definitely on the agenda. In China we see a continued support for renewable and for wind with a discussion on potential increase in the 2020 targets. If I look at order intake, as I said, Q1 was the highest order intake ever in Vestas, 1.75 gigawatts, an increase of 47% year on year. The selling prices remained fairly stable in the quarter. So looking at order intake, the improvement was 562 megawatts. U.S., Brazil, Poland and China were the main contributors to the order intake in the quarter, accounting for more than 60%. It's encouraging to say that we start to see traction with improvement year on year in Brazil and China through our key markets to focus on our mid-term strategy. On the price development, as I said, the price for megawatt was €0.92 million in the quarter. Here we see some positive effect on the dollar, so if you take that out I would say it's probably the same as the quarter a year ago, confirming also what I said that, in general, we see a stable price situation in a competitive market. Also, want to point out that of course the price per megawatt depends on a number of different factors; the turbine site; the scope; and, of course, the uniqueness of the offering. If I then look at the order intake, in the quarter we had order intake in 20 different countries, again, confirming our strategy of global reach. It is important for Vestas and we see that we deliver on that with a broad geographical order intake. Overall, the main year-over-year improvement is seen in Brazil, Poland, China and Sweden. Looking a bit in the different geographies; Americas up 60%, primarily driven by Brazil, but also good activity levels in many other Latin American countries and in the U.S.. EMEA up 18% year on year, also broad-based improvement, especially then in the quarter driven by Poland and Sweden. But, as I said, solid activity levels across a wide range of countries. Asia Pacific, of course, from a percentage point of view, very high, but coming from a low level. What is encouraging then to see is that the year-on-year improvement in the quarter is solely driven from improvement in China. If I then look at delivery, deliveries were up close to 30% in terms of megawatt. Here the improvement is mainly seen in the U.S. and Asia Pacific regions, so Americas up 49%. The higher activity level is primarily driven by the U.S., but also improvement in countries like Chile, Uruguay, Canada, while we saw a decline year over year in Mexico and Brazil. In EMEA delivery decreased 8%, primarily driven by lower activity levels in the quarter in Germany that, of course, had a very high level during last year. On the other hand then we see improvements in markets like South Africa, Finland, Poland and France. Asia Pacific, yen, of course, extremely low level last year, but we see improvements in delivery in all markets from a low level. That leads me to the backlog. The backlog increased €1.3 billion and we now have a record high backlog at €15 billion. The turbine business increased €0.8 billion and the service business €0.5 billion. A few words about our joint venture with Mitsubishi Heavy Industry around offshore. In the quarter we have received the tax certificate for the V164-8 megawatt turbine which of course, is very important and also confirm that we're on track on the technical milestones that we have set up. We have a prototype, as some of you know, up and running. With this prototype we have actually set the world record in electricity production for 24 hours. So the operational performance is progressing according to plan. I have talked about it before, but the basis for joint venture was both technical and commercial milestones that were agreed between the two parent companies. They also trigger payment into the joint venture. Here we're progressing as planned, both on the commercial and on the technical side. And then I would like to hand over to my trusted CFO, Marika, to go through the financials.

Thank you Anders. So we start, as we normally do, with the P&L. As you can hear from Anders, there is a lot of positive development here in the quarter and that is also well reflected in our P&L. You see revenue is increasing significantly; I would say 18% change compared to Q1 of last year. That also has an impact on the gross profit where you see in absolute numbers an improvement of 23%. That is an improvement in gross profit percentage by 0.6 percentage points. Fixed costs remain under control and despite, I would say, Q1 of last year being very low. You see the dropdown effect on the EBIT is 98% improvement compared to Q1 of 2014. The income from investments that you see here, the €4 million, is the joint venture that Anders just finished with. The joint venture did a profit of -- for €4 million and €2 million of them is allocated to Vestas. And we also [indiscernible] had a profit from the turbine sales of €17 million. €15 million of those were corrected, as we normally do according to the accounting principles, so that gives us €2 million. So the €2 million plus €2 million is the €4 million from the joint venture, to be very precise. That gives us a record net profit of €56 million and you can see, clearly, a huge improvement compared to last year. The margin we deliver in Q1 is 5.2% compared to 3.1% last year. The service business, just to remind everyone again, this is onshore only and there you see, compared to Q1 of last year, where we have already eliminated the offshore impact. You see a 21% increase year over year. This is a significant part or a very important part of our strategy and the mid-term target in the strategy is growing 30% on revenue. We continue to deliver stable margins; so you see an EBIT margin before special items of 21%. Anders has already talked about the order backlog and you see €500 million compared to Q4 of 2014. The average share duration in the order backlog is eight years and I think that's also very important to highlight. The balance sheet, not a lot of news apart from the net cash position continues to be strong; so it's a €1.7 billion of net cash. You see consequently the net debt is also improving compared to last year; net working capital is also improving. Here you also have a slight currency effect of 140 or a slight -- you have a currency impact of 140 on that on the balance sheet. And we delivered a 31.4% solvency ratio compared to 31% last year. The change in net working capital. The net working capital focus continues, we think it is, both in an upturn and a downturn, very important to have the focus and having the right processes in place. And I would say that net working capital is clearly representing that. You see a positive development over the last 12 months, primarily driven by higher pre-payments. Pre-payments in this case is both down payments and milestone payments. You also have an impact from payables, majority because of the high activity in the company. That is slightly offset by higher inventories over the 12 last months. You see the same improvement or you see an improvement over the last three months and the drivers are the same. So it is payables and pre-payments that are driving this; pre-payments primarily. Warranty provisions. We have focused as you know a lot on quality and that is well reflected in the consumptions and the provisions. Provisions based on revenue obviously. Consumptions continue to be stable. We also have a lost-production factor that is very stable, below 2%, at this point. If I go to the cash flow, here you see what we said also for the full-year 2014. You see a cash flow that is, to a large extent, driven by the improvements in the operating activities. You also see the net working capital here being currency excluded, so it's a clean cash flow that you see; you have no currency impact on this. We managed to deliver €146 million in the quarter, compared to negative last year. Total investments continued to be stable, so we're more or less in line with Q1 of last year, €63 million. The investment continues, again, to be primarily in loans for V110 and V126 and also capitalized R&D. The capital structure continues to be strong. We're, net debt to EBITDA, in negative territory as we have been for quite some time. The target remains of 1. That is, clearly, improved by our net cash positions and, also, improved EBITDA. The solvency ratio dropped compared to Q4, but increased compared to Q1 of last year. The Q1 development is primarily working capital element and, also, the improved dividend. As you recall, we issued a green bond to strengthen our capital structure even further. We have thereby secured long-term financing, at seven years to be precise. And, we have strengthened our balance sheet and this clearly supports what we want to achieve as a solid capital structure. We also maintain our presence in the debt capital markets which is also very important. The green bond is unique to that sense that it's used for general corporate purposes as we're considered a green company and being in the wind energy. So I think a good performance by the company. Return on invested capital continues to be high. ROIC is now approaching the 44% territory. This is the focus that we have; so it's both earnings, as well as our net cash position and balance sheet items, that is improving this. Over to you, Anders.

Thank you, Marika. So to summarize then. As I said, very satisfied with the Q1 result; a good start of the year. We affirm that we progress well on our overall strategy on profitable growth. So a few highlights on the market and growth assets in the market and the turbine side; order intake of close to 1.8 gigawatt in the quarter. Also, on the service side, another key objective as Marika said, 21% growth in revenue year over year. A solid order backlog of €15 billion, so we're on track. One improved earnings with the improvement in the EBIT margin year on year and in the quarter at 5.2%. And ROIC then which, of course, is a combination of different operational excellence activity at 44%. Looking ahead in this year then, as I said, higher order intake, year to date, than expected; of course, also being further into the year a greater visibility; and the strong development of the U.S. dollar to the euro are the prime reasons for our revised upgraded outlook for the rest of the year. So on the revenue side, we have minimum €7.5 billion; on the EBIT margin, before special items, minimum 8.5%. Total investments we have increased with approximately €50 million, to approximately €350 million; and the free cash flow minimum €600 million. We have now changed view on the service business; that we expect to continue to grow with stable margin. So with that, we open up for Q&A.

[Operator Instructions]. We have first question coming in from Kristian Tornoe from Danske Bank. Please go ahead.

A couple of questions from me. First of all, you state in the report that revenue is positively affected by €150 million, due to currency. Could you give us the same number for the impact on EBIT that is due to currency?

Yes and you are correct. Just to remind, everyone, again, this is the translation impact. It is obviously more on the revenue, when you cascade down further in the P&L, you have a negative impact on the fixed capacity cost, as well as the depreciation. So the impact on the EBIT is in the lower -- or in single-digit numbers for the quarter.

Okay, very clear. Next question, you come up with a positive cash flow and increased your cash position, upgrade cash flow guidance. So obviously you're going to continue to increase your cash position. How much cash do you need on the balance sheet?

Yes, you are right; we indicate that we will continue to improve our balance sheet. We're, as we have said earlier, continuing to evaluating our capital structure and, consequently, our net cash position as well.

Okay. Last question, in connection with Q4, you stated you had 3 gigawatt in MSAs in the U.S., can you give us an update on that number?

Yes, so we have potential agreement up to 3 gigawatt in the U.S. and that still holds true; so that's still the case. So nothing really has changed there. It is MSAs as I said and it's a potential up to 3 gigawatt. We're still, as in Q4, positive on the U.S. market; so no real change from last quarter.

Okay. And the next question online come from Patrik Setterberg from Nordea. Please go ahead.

Some of the same topics I'm going to ask you. I just wondering on your new revenue guidance for 2015, how much of the upgrade is explained by FX?

The majority of the upgrade is relating to operational improvements, as we see it. One-third is -- in the order of magnitude now, is one-third is currency.

My second question is related to U.S.. Regarding your capacity situation for 2015 and 2016, are you able to squeeze any more orders or deliveries into 2015?

Generally speaking, of course, we balance the -- try to balance demand with capacity. We have a third production capability in the U.S., both nacelles and blades and towers. So we, as I said, we have the full manufacturing capability there. We're confident that we will be able to fulfill the demand that we see in the U.S. market. And exactly how much capacity we have, versus competition, for competitive reasons, I will not go into.

Okay, but it was fair to assume that you have some capacity left for 2015 and quite plenty capacity left for 2016?

It's fair to assume that we have the capacity left that we need. I think, also, you should also -- I can also remind you that we of course, have changed there, especially on the blade side and with the more flexible set up with the new structure shell. As you've also seen on the investment side, the absolute majority, although of our new investment goes into molds, for V110 which of course is -- sorry which is the key thing to increase the capacity.

Okay. And then my last question is regarding your order intake in China in the first quarter. Could you just give some wording about the success and the reason why we're seeing such a high number of orders from China, in the first quarter?

I think, of course, as you say, we're really encouraged or I'm really encouraged that we see a good year-on-year increase in China. We have taken orders in the quarter of 220 megawatts which, of course, is a considerable improvement compared to the year ago. We have launched a new strategy in China. We have put in a new management team in China. We have worked on our customer relations, of course. We have changed our service offering. So we've done a number of different strategic initiatives, to get more traction in the Chinese market. I have also said before, it's a mid-term strategy. Our objective is to increase Vestas' performance, year on year. But, of course, there is a lot of work that remains to be done in China and it's really encouraging to see the signs now also on orders.

And the next question in line comes from Klaus Kehl from Nykredit Markets. Please go ahead.

Two questions if I may. First of all, yes, congrats with the strong order intake; it was, yes, pretty solid. But anyway, I was a bit disappointed about the unannounced orders. Could you say anything about the weakness in the small orders, is that due to Germany, perhaps? And secondly, we're now starting to see a solid order intake in, especially China and Brazil and there's no doubt prices in these two countries are lower than we're used to. But could you confirm that margins in these countries are on par with the Group? Thank you very much.

Yes, first of all, I'm not disappointed on the order side. On the contrary, I'm very satisfied with the orders both in Q1, as I said, record high for Vestas and also, year to date. Of course, we have a clear policy on announcing orders, both from the size point of view and when they are firm and unconditional. So how many small orders you can have in a quarter will, of course, vary quite a lot. So when it comes to the prices and then again price is very related to scope and local market condition, of course, it's fair to say that in China the price levels are usually lower and that, but also the scope is lower. So quite often in China, for example, we don't sell towers, so you have a different scope. Then, of course, you have a lot of different sites also in China; it's a big country with different fit of the turbine type to decide and, therefore, different margin profiles. In Brazil actually the price to megawatt is not lower; contrary, it's a fairly, compared to global average, high price level. On the other hand, in Brazil you have a lot of local content requirement that actually then also push up the cost. So on a price level point of view, Brazil is not a low-price market. On the other hand then, from the cost point of view, it's not a low cost market either, so due to the local [indiscernible]. So, it's hard to -- so you can't say, really, that it's low price in Brazil. In general, we don't comment on our margins in specific countries. As we have stated before, I would say that uniqueness of the site; the fit with the turbine; all the factors I talked about, the content of the delivery and the requirements of local content has, in most cases, a bigger influence on margins than geography.

Okay, so just to sum up. We should not expect a margin squeeze if Brazil and China starts to constitute a bigger part of your revenue.

The guidance on what we say as the overall margin would be the total mix of Vestas.

The next question in line comes from Mark Freshney from Credit Suisse. Please go ahead.

Two questions, firstly, on the foreign exchange, can you talk about how you use financial products to hedge ahead, i.e., your hedging process? Secondly, just on the large amount of cash on balance sheet, clearly you've laid out a number of target criteria for the balance sheet and you're still falling short on the solvency ratio. If you meet all of those targets, at what point would you consider ways to reduce capital? And would you consider share buy backs, acquisitions or capital returns? Thank you.

Okay, if we start with the first question. As I said, we're, to a very large extent, naturally hedged and that is also the type of business we're in as it's a long distance to ship these kind of products. So the remaining part that is not hedged which is in the order of magnitude 15%, is hedged by project more or less. So that is the part that we hedge when we have a firm and unconditional order then we would hedge that specific project, so that is relating to the Forex. If we look at the cash position we have, there are sort of different options we have on whether it's a share back or a dividend. We have, obviously paid a dividend and when we pay that it was also stated from our Board that this was re-installed. We haven't paid anything in 12 years and we paid and we didn't have the intention to do this as a onetimer. But again, that is a Board decision when we meet to target that we have put up for ourselves, the solvency ratio. Yes, it is not as strong as it was in Q4, but it's still a good level and it will vary in between the quarters. So it's nothing that keeps me awake during the night.

And the next question in line comes from Claus Almer from Carnegie. Please go ahead.

I also have a few questions. When it comes to U.S. orders you have had a very busy start to 2015. But do you still see other PTC-qualified projects in the market that have not yet signed a turbine contract? That would my first question.

Yes, it could well be. As we announced in Q4, during a hectic time of last year we signed MSAs with the potential up to 3 gigawatts, the minority of those with PTC-qualified components. So yes, there might very well be additional projects in the market that qualifies with a safe harbor qualification. I guess that's what you mean, because there are a few ways then to get the PTC components the safe harbor and a continuous construction. So there might very well be a project in the U.S. market both on the safe harbor side of the PTC qualification and, of course -- of course, on the continuous construction.

And then do you see a different profit side when you compare the frame agreements you have and those projects you have signed during 2015?

No, I wouldn't say so. I would say that -- and of course, on this PTC qualification and frame agreement we should also remember that, of course, customers buy and sell projects, so to speak. So there could be project that a customer had an intention to do under a frame with us that contains PTC-qualified components from us, but they then decide to sell that product to another customer. For us that is, well, it's the customer decision and, of course we have the qualified components. But that means that you can see, dependent on the customer's movements, that projects actually are bought and sold between customers as well. On the product side the clear dominant product for Vestas in the U.S. is V110. But we also see interest now coming up for our 3 megawatt platform which we think is very encouraging, actually, in the U.S. But the majority, for the short term, at least, as we say, is around the V110.

Okay. Just a follow up, just to be sure. You have still 3 gigabit of frame agreements in the U.S., right?

Approximately.

And the next question in line comes from Sean McLoughlin from HSBC. Please go ahead.

Two questions. Firstly, on services, if I think back to February, you guided for stable service margins year on year in 2015. But given the strength of the Q1 margin, do you stick by that or should we be expecting actual year on year margin erosion in services later this year? Secondly, on the JV, when do you expect the next milestone payment? And what does that depend on specifically? Thanks.

Okay, if we start with the service margin. Yes, we're reiterating our stable margin guidance or soft guidance, if you would like to call it that. You will see fluctuations in between the quarters and I think that has been the case also before. But we consider the margins to be at a stable level.

And on the joint venture payment scheme, as I said, we have -- or the joint venture, I should say, have received a majority of the payment, according to the schedule. We will not go into the details on the agreement between us and Mitsubishi Heavy Industry on the few that remain.

And the next question in line comes from David Vos from Barclays. Please go ahead.

Two slightly more strategic questions. Last week, we had a very interesting development coming out of the U.S., where Tesla announced it will be unveiling its stationary storage business, pitching that solution as the missing piece in transforming the electricity grid. It occurs to me that, that could potentially be quite significant for Vestas. So I would just like to hear your thoughts on how you are thinking about positioning yourself in a world where you might have utility level energy storage. That's question one. Two, I would also be very keen on hearing your thoughts on, stepping away from Vestas for a moment and thinking about the wind industry, as such and how you see the level of consolidation, at the moment. Is that adequate? Do you see room for improvement there? Very keen to hear what you think about that. Thank you.

If I start with energy storage, I can't say I'm any expert on Tesla's release. But, of course, energy storage and the development in energy storage is obviously a benefit for renewable and for wind. So that is a positive development in itself. And, of course, we have seen battery technology getting better and better and cost points getting lower and lower. So that is definitely a positive development for renewable and for wind. Of course, that development happens in a number of different areas. Tesla, of course, also being involved in the transport area which is one way of storing it in the car. And then, also, this type of, as I understood it, so for residential storage systems. But also, there are test projects being built of more utility big storage systems. So that is positive. And that, of course, also, then in connection with better grid connectivity, with connections between, for example, hydro which today in the Nordic region works as one storage mechanism between Sweden, Norway and Denmark, that enables Denmark, actually, to have 40% of electricity generated by wind. So all those things are, of course, positive trends for the industry and, therefore, for Vestas. On the level of consolidation, I would say that what we have seen recently in the market is, of course, more type of joint venture setups and primarily towards the offshore market. So we did that some time ago. Of course, with our joint venture with Mitsubishi Heavy Industry, we see now some competitors also announcing joint venture on the offshore side. So there is a certain amount of consolidation activity that happens in the market. Of course, we've also seen an acquisition From -- on one of our competitor. So, of course, it's something, as a market leader, that we monitor closely.

And, just coming back on the storage question then, is that something that Vestas is already involved in itself? Are you partaking in these pilot projects? Or, indeed, do you feel the need to invest yourself in some kind of storage solution there, perhaps also with a partner, but does Vestas need to invest? And then finally, if I may, the point is well made on the fact the dividend is a Board decision which we understand; I was just wondering if any potential acquisitions are also a matter of the Board to decide on or if that's the management team, indeed, that would drive such a decision?

I think, on your first question, around the end of the storage, we will not invest in battery technology as such. I think there are other companies who are doing that which is good for us. What we will invest in what we will participate in is, of course, trials. But then we will focus on the grid connectivity on our turbine and how we can optimize the connectivity to those kind of systems. And, we have a very advanced solution in our current turbines, especially for the more-strict grid markets and there we put a lot of effort in and that's also done in the past. So, that interface towards the grid and how we can optimize that is the area for Vestas to invest in and participate in trials, not in the battery-type of technology. When it comes to the dividend policy; you're absolutely right. It's in the -- under Board decision. Of course, Executive Management can do propositions to the Board in the normal way. When it comes to acquisitions and so on, I will not go into details on the roles and responsibility more than what we describe in our Annual Report, between the Executive Management and the Board. But, of course, should situations like that occur, of course, we will be completely in line with the Board.

If I can just underline, we have a very strict governance, like all other companies, on what decisions can be taken where, just to underline that. So, we're not different in that perspective.

And the next question in line comes from Pinaki Das from Bank of America. Please go ahead.

I've got a few questions. The first one is on FX; you mentioned that it's about one-third of guidance upgrade is because of FX. Could you give us a rate that you've used? What rate have you used for full-year guidance for 2015? That's the first question. The second question is around U.S. PTC. It seems like it's not entirely clear what's happening. Obama wants permanent PTC; the Republicans don't want PTC at all. So, could you give us some thoughts around where do you see this thing going over the next year or end of this year or beyond? The last thing is just on the 8 megawatt offshore turbine. It's been almost 1.5 years since the Mitsubishi JV was formed. When do you expect to see meaningful orders for 8 megawatt turbine? Thank you.

So, if I start with the Forex. The guidance, as we said, we see a very strong development from beginning 2015 to the point we're at now and that strengthening of the dollar is part of our guidance as we stated. But I just would like to state again that the vast majority of the upgrade comes from really operational improvements that we see at this point.

Could you give us a rate, around what rate you have used for the guidance?

You would be able to see what the rate is end of March this year and beginning of the year, so that is the difference that is reflected in the guidance.

Regarding PTC, I will say that, of course, no really clarification of continuous construction also in 2016. We, of course, don't see a good solid market in the U.S. for 2015/2016 delivery. What will happen later this year on extension, of course, that is very interesting question for us, as for many others in the wind industry? We all working with EWEA, the wind association organization in the U.S. and that's our way to influence and lobby for an extension of the PTC. I think, as usual, it's very hard to predict. But I can just conclude that, so far, it's been extended in one form or another 12 times. So from a probability point of view, that, of course, looks fairly probable. Regarding the offshore, I must say that I don't know exactly what you count as a significant order, but I'm very satisfied with both the interest and the announced order with DONG, it fits very well actually with our timing. We have taken an order with DONG on Burbo that and of course DONG is, on the customer side today the leader in offshore. We will start that delivery in 2016 and that actually fits very well with the timing we have when we're ready with the product. Of course, besides that we're working on a lot of other offers for the future and we get a lot of interest from the customer. The joint venture will, at least, today follow the same principle then on order announcement on firm and unconditional.

Do you expect to see any orders in Japan any time soon?

I would say very hard to predict, there is definitely an interest for renewable energy in Japan. I think, of course, for obvious reasons very dependent on the import of fossil fuel. It's also a market where, at least historically, it's taken it's time. So I think there is good potential, I will not speculate in exactly when.

And our next question comes from Alok Katre from Societe Generale. Please go ahead.

Two questions if I may please. Firstly, just in terms of the margins; could you just talk about how the project mix and project margins fared in Q1 and how does the margin, the backlog, look like versus, let's say, what you saw in February? And then the second part of the margin question, of course, is now that the target for this year is greater than 8.5%, that's a five year high sort of level orders seem quite good, pricing and cost disciplines seem to be intact, so are we looking at double-digit margins in 2016 and 2017 perhaps, so to say? And, if not, then what are really the hurdles to achieving that, given what we're seeing in terms of what I said, in terms of the trend? So that was on the margins side. And then just generally, just outside of P&L, well, on Brazil specifically what we're hearing from some of the industry players is that the execution environment is quite tough, with the macro uncertainty, inflation, currencies and so on and so forth. So just wanted to maybe get a sense from you on how you see that sort of environment and what gives you the confidence of executing well in this sort of an environment? And are there any sorts of safeguards in the contracts generally?

Okay, if I start with the margin and the mix impact. As we're in a project business, as you're fully aware and we're rigorously negotiating each project, so that is also why Anders has said now, a few times, that the scope impact has an impact, but I would say it's really how we negotiate each project. Scope is obviously different, but the cost picture it also depends on the scope. So we're, I would say, managing the margins on each project in a very solid way. And then your more speculative question on, we have said -- stated in the mid-term strategy that we want to have best-in-class margin, so that's what we're striving for. We're also striving to do better as a company, so that is my comment to margin -- EBIT margin development.

Some comments on Brazil specifically; then I think if I try to answer it in different parts; the things that we can control, as a company and, of course, the things that are a bit out of our control and where we can have more mitigation-type of action. It's of course, first of all the BNDES approval for local content requirements; there we're confident we followed a process that is being set up which means that you have a pre-approval, so to speak, an engagement where you get approval for your plans. And then there is an auditing process for Vestas and all other turbine manufacturing that you fulfill those requirements and, therefore, get the qualification on local content side. As I said, that process I'm confident with, that we follow and execute on according to the agreement we have and, therefore, qualify. When it comes to the more specific wind which I think was part of your questions on grid connectivity and so on, we have seen that there have been challenges in the market with grid connectivity, nothing completely unique for Brazil, I would say. I think that we face that situation in several of the emerging markets, where the grid definitely has to be built out, not just for renewable actually, but because for all kinds of new electricity generation. And, since their electricity demand is increasing, there is a need to build out the grid and the capacity of the grid. That is sometimes not, in timing point of view, not 100% aligned. That is, of course, then when you see this mismatch between built generation or built wind generation with grid availability. That is, of course, a concern. But I think overall the positive is, of course, that there is an increase in energy demand. Wind is very competitive in Brazil, so it's more of a timing concern for that. And then Brazil as a market and currency and so on. Of course, historically, it's always been more volatile on the currency side and I have no sort of projections on the currency going forward in Brazil. The counter-measurement and it's not something that we, as Vestas, speculate in; I mean we focus of course on our business. What we can do on that aspect is, of course, again local content to a higher degree, so you get more of a natural hedge. So that is what you can work with in order to limit your exposure on different currencies. I think if you saw the last auction now in Brazil, there was a reflection that the currency -- of a lower currency and, actually, the PPA prices went up in the market. So that is the sort of counter-measurement that we can do, but I think you have to accept that -- in those kind of market conditions, you have to accept the conditions, so to speak.

Just a follow-up for Marika, how do the margins in the backlog look today versus, let's say, in February? Are we seeing stable, better maybe or--?

I would say we, as I said we're sort of having a strong focus on the margins and consequently, there is absolutely stable margins in the order backlog.

And our next question comes from Jacob Pedersen from Sydbank. Please go ahead.

I have a couple of questions. First of all, on the order intake, it seems as if there's been a step-up, a step change in the first quarter. Do you view that as structural or is it a question of you gaining market share? Is it a coincidence or is it a question of you moving forward on your customer initiatives; meeting the customers early in the development process; creating key accounts? Is this some of the success that we see in the improved order intake or is it just improved markets overall?

Yes, as I said, I'm very satisfied with the order intake in Q1, a record high for Vestas. Of course, we all have different means of order announcement, us and the competition, so if we're gaining share, so to speak, in Q1 or not, I guess the [indiscernible] we have to wait a little bit. We, of course, follow the market closely and try to estimate order intake from all different turbine manufacturers in the business and I'm sure that you do that as well. I can just conclude that in Q1 I'm very confident with our position and that means both how we interact with the customers, how we execute on the strategic program that we have around account management, around early engagement, but also around the competitiveness of our products and services.

Okay. My second and last question is regarding the U.S. market. What is your feel when you look at the U.S. customers? They were quite stress-tested with the way that the PTC was extended by the end of 2014. If we get a similar extension in mid-December 2015, will they be able to have their projects ready to take advantage of such a short PTC extension to create some stability through 2017 as well? What is your view on that?

I think of course, the U.S. is a very dynamic market, just for the reasons that you describe. Of course, as an industry and as Vestas, we would have preferred a long-term secure framework to plan on and so. I think there, of course, we're definitely not unique and that is in the end, of course, our loading. But, having said that, I must say it is a very dynamic market. It's a market that is fairly used to, by now, this way of operating and that means that there are a lot of potential project developers that are looking ahead on qualifying early into the pipeline. And then, of course, decisions are taken fairly late one way or the other, but I must say that the market has gotten used to these ways of working, so there is quite a lot of prequalification of projects that are put in pipelines and then maturing as the different deadline approaches. I think we're also seeing in the U.S. now the latest trend on the customer side is definitely setting up yield cost, to lower the cost of financing. Of course, they are also then dependent on availability of project and that projects actually are getting built and then dropped into this yield cost.

Okay. And there is a last question in line coming from Fasial Ahmad from SEB. Please go ahead.

One question from my side, production, did that run smoothly in Q1? If you could comment on that. And the reason I'm asking here is that your deliveries are up almost 30% in the quarter and your service business is also up quite nicely with margins expanding. So, why is gross margin only expanding 50 basis points?

Yes, you’re correct; the deliveries are up 30%. You have -- as we have said before, deliveries is not the 100% measurement for the gross margin development. We think still that we delivered better gross profit margins compared to last year. Again, you will see some fluctuations in the quarter, but it's still a positive development that we're satisfied with. Also, remember we have lifted the overall guidance, so obviously we're confident on the margins in the business.

And could you just comment on the production? Was that running smoothly or did you have some ramp-up costs or -- because 50 basis points, it doesn't seem very much?

Generally speaking, we actually increased delivery last year, also year over year, 30%. We increased delivery this quarter 30%. So of course, we're very busy and, of course, it puts a strain on the organization to do the ramp-up. But, having said that, we have changed the technology on the blade-side, we have a flexible setup, where we can go to three shifts and we can have flexibility between one, two and three shifts. So of course, that kind of challenge, to ramp up fairly quickly, as we also did last year, has its challenges, no doubt. But we're -- but I must say that I'm happy with the performance; I'm happy with the performance in the production unit for Q1 as well.

And, just to follow up on this point, should we expect a more smooth kind of production in Q2/Q3 versus Q1?

We're obviously working on having things as smooth as possible. But just to highlight what Anders said, it is a high activity level. So, there could be fluctuations.

Okay. And then we will end the call. Again, thank you so much for calling in. Thank you for your interest and your questions.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.