Anders Runevad - Group President and Chief Executive Officer Marika Fredriksson - Executive Vice President and Chief Financial Officer

Kristian Johansen - Danske Bank Casper Blom - ABG David Vos - Barclays Dan Togo - Handelsbanken Capital Markets Akash Gupta - JP Morgan Phuc Nguyen - Citi Fasial Ahmad - SEB Alok Katre - Societe Generale Klaus Kehl - Nykredit Markets Mark Freshney - Credit Suisse Sean McLoughlin - HSBC Pinaki Das of Bank - America Merrill Lynch Gurpreet Gujral - Macquarie

So, good morning, everyone, and thank you for calling to this Third Quarter Earnings Report. As usual, it’s me, Marika and Hans Martin and the IR team are here today. So the normal disclaimer slide and then, let me jump straight into the key highlights for the quarter, overall, very satisfied with the strong performance, good execution across the board. High activity level delivery up 44% year-over-year and also driven by all radiance. Good earnings improvements EBIT before special items of 14.9%, 4% up year-over-year. Also a solid free cash flow of EUR155 million on a par with the same quarter last year. A combined order backlog remains high at EUR17.1 billion and turbine order backlog impacted by high activity level in the third quarter. Outlook for 2016 that has proven to be an extraordinary year and as we have done in the last two years based on better visibility for the end of the year and of course also performance year-to-date, we update our outlook to a range and increase on all parameters. So as usual then I will start talking about orders and market, and then Marika will talk about the financials. So looking at the order intake than in the quarter, increased by 17%, 1.8 gigawatt, the 17% correspond to 161 megawatts and order intake in the quarter was primarily from U.S., China, Germany and Morocco that accounted for 75%. The average selling price of order intake in million euro per megawatt was 0.88 in the quarter, so a fairly stable development in a competitive market. And as usual of course, we should remember that the price per megawatt depends on a number of different factors, turbine type, scope, geography, and of course the uniqueness of offering. If I look at order intake in nine months actual, we are keeping the pace from last year. Our global reach continues to pay off, and we've taken orders in 29 countries across five continents. I should also say here that the normal regulatory environment slide is taken out in this quarter simply because we don't see any significant new event or changes. So we feel overall that we have a favorable regulatory environment. Looking a bit more into the details on order intake and for nine months actual, we see a decline in Americas of 23%. We see that this is primarily due to the different PTC cycle than previous years, while we see positive year-on-year changes in markets such as Canada and Argentina. EMEA up 22% as we have talked about previous quarters, driven by a range of countries, but especially then Germany, Norway the big order we received in Norway and Morocco contributing positive while offshore. And then I talk about the 3 megawatt offshore which of course is the Vestas own product has a negative impact compared to last year. In Asia-Pacific we see a decline mainly impacted by last year's order in Thailand. On the positive side, we have secured Vestas first ever order in Mongolia during Q3. Moving on then to deliveries, continued strong growth across all regions. So our nine months actual deliveries are up 35% close to 6.5 gigawatts. And as I said that's across the board. Starting with Americas then, we up 36% and 66% primarily driven by the U.S., but also year-on-year improvement across Latin America, especially in these numbers Chile in Brazil. We have received a lot of questions on how we see the delivery of volumes in the PTC cycle 2017 to 2020 for the U.S. market and our assessment currently is in line with most external reports and that is going to be a buildup towards 2020, so relatively speaking than lower level in the U.S. for delivery in 2017. In EMEA, also solid good development 29% on nine month actual, 8% in the quarter, higher activity levels basically in Germany and Sweden and also Belgium which is again a 3 megawatt offshore project. Also in Asia Pacific from of course a lower level, but good growth numbers and here the increased activity comes from China, Thailand and India. Looking at their combined order backlog then remains strong at EUR17.1 billion, decreased sequentially on the turbine side with EUR1 billion in the quarter. On the other hand year-over-year, we saw an increase of the EUR0.7 billion in the backlog. Service backlog remains constant or flat EUR9.9 billion. Some word about the joint venture as well that we have together with Mitsubishi Heavy Industry for the offshore market. Deliveries are progressing according to plan. And also sales activities remains high. Looking at the order situation, the backlog grew to 1.7 gigawatts, the new project in the quarter was close to 100 megawatts and one the 8 megawatt turbine. Conditional orders stand at 450 megawatts and preferred supplier agreement increased to 620 megawatt. As I said, also an installation quarter where Burbo Bank, the first 8 megawatt project is under installation, progressing as planned, about half or bit more than half of the turbines have been installed. And the joint venture is busy also installing to 3 megawatts projects Nobelwind and Rampion. So with that I’ll leave the word to Marika to go through the financials.

Thank, Anders. And if you go to the income statement, we’re delivering another strong quarter. I would say more or less on all parameters and also reflecting, I think in a very good way what Anders just went through. You see our strong revenue performance so it's increased by 37%, also well reflected in the profit where we have a 52% improvement. Please remember also the positive impact from the volume that you see in the quarter and also note that in the gross profit you have an impact from a write down of 54 million in Q3 and that is related to development and construction activities from prior years. You also see a good development or a very solid performance on the SG&A, so we are more or less flat year-over-year. And all that obviously contributes to a very positive EBIT performance with an 87% improvement year-over-year and again reflected in the margin that improves by 4% year-over-year. Gross profit is solid, I would say quarter-over-quarter, so we are generating in Q3 20.4% percent gross profit, again a reflection of not only the volume, but volume certainly have a positive impact in the quarter. If we have a look at the SG&A and that continues to be under control and it's a very important parameter for us. And you see that quarter-over-quarter in percentage points we are continuing to leverage the volume. Obviously we have a slight increase, but remember also in the numbers you have the impact of the two acquisitions that obviously have an impact on the SG&A. But all in all, we continue to leverage the SG&A also in Q3 of this year. The service business improves 11% quarter-over-quarter or year-over-year and you have both organic as well as growth in the two acquisitions. EBIT is at 14% in this quarter to be compared with 18% in Q2, so obviously not a margin level that we're satisfied with, but it also proves the lumpiness that you see in the service business in any given quarter. Underlying business continues to be good, so you see backlog is increasing 19% in improvement - sorry 21% to be very precise, yes. Balance sheet is continues to be strong and net debt is performing again another quarter well. You see a negative net debt and that obviously is reflected in our net debt to EBITA. Net working capital is year-over-year flat, a slight worsening compared to last quarter, but again as anticipated because of high activity level. Solvency ratio is well within the boundaries, so we are close to 33% and the target is to be between 30% and 35%. The change in net working capital, which continues to be a focus area and we have as I’ve stated before been very efficient on the working capital considering the high activity level that we have in the company. So if you look at the changes over the last 12 months, obviously we are performing fairly similar and you see a flat development of the negative working capital. Over the last three months, you see a worsening and that is primarily receivables, and also prepayments going down and this is again a reflection of the high activity level in the quarter. If we go to the warranty provision and lost production factor, we are continuing to consume less than what we provide for. And obviously that is a position you want to be in. That is again reflecting - reflected in our lost production factor that continues below our target of 2%. So still good quality performance in the company. Cash flow statement, cash flow continues to be driven primarily from cash flow from operating activities i.e. the result of the company. You see the negative impact again from the net working capital as I explained earlier. And that brings us to a positive free cash flow of 155 million so fairly similar as Q3 of last year. Total investments are trailing more or less as anticipated. There is a slight increase here as we have decided to acquire one of the facilities that we have in Germany. That was a lease agreement. And simply looking at the time of extension, it was cheaper for us to acquire the facility in Germany. That is not part of our strategy to own facilities, but in this case, is what just more financially viable to acquire the facility. So trailing 12 months including the acquisitions, we are trailing at EUR591 million, but the underlying net investments excluding that is EUR431 million, so in line what we have communicated earlier. If we look at the capital structure, we are as I alluded to earlier well within the boundaries. We are bringing a negative net debt to EBITDA also in Q3 and the solvency ratio is picking up from last quarters to 32.9%. Again the efficiency that we have shown both in terms of earnings, but also the efficient balance sheet that we have and our efficiency on the working capital is generating a very high roll also in this quarter. So we are now at 162.5, so solid improvements on basically or parameters to generate. By that I give the word to you Anders.

Thank you, Marika. So as I said in the highlight and also remind you as we done last two years based on better visibility for the reminder of the year. And of course performance year-to-date, we now go through an outlook that is a range. So, on the revenue side, from minimum EUR9.5 million to between EUR 10 billion and EUR10.5 billion; on the EBIT before special items, from minimum 12.5% to between 13% and 14%; on total investment, from approximately EUR500 million to approximately EUR600 million’ and on the free cash flow, from minimum EUR800 million to minimum EUR1 billion. We have not changed our outlook on the service business, expected to continue to grow with stable margins and the dividend policy is also unchanged. So with that we move into Q&A

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

Yes, thank you. My first question is regarding the U.S. and whether you can update us on the level of clime activity you’re having here and then the fourth quarter when it comes to negotiations on PTC contracts?

Yeah, I mean of course the U.S. is currently extremely high activity levels, and of course our sales team there is very busy in this end of this PTC cycle. So very high activity level and I expect that to continue actually to probably for the first of December this year, so I feel good about our position in the U.S. market. And as I said before, we have seen good progress actually during the last three years when it comes to our developments in our market share in the U.S. So very high activity level and of course a lot of negotiations with customers.

Okay, that's very clear. Then my second question obviously your backlog is down EUR1 billion you are calling 2016 extraordinary, I mean is what you're trying to stay here that we should expect lower activity in 2017?

I think if you say 2016 explore and I think if you look at the growth that we have seen in 2016 year-over-year in both revenue and earnings, I think it's fair to say that it’s been extraordinary year. And of course we are moving into an overall market situation now where we have seen two or three years of very, very high growth levels. And we're moving now to the next three year outlook, which is a market that still shows growth overall in that mid-term period but of course north from the levels that we have experienced when we look at the growth rate year-over-year in this year. And of course as we're also commented on Q2, we saw a very, very favorable Q2. So on the U.S. specifically then it's of course where we see a new scenario, and as I said as well and I think in line with most market the expectation is that the volume will be back end loaded if you look at 2017 to 2020. And therefore we expect the U.S. specifically 2017 to be a lower activity level than 2016.

Okay very clear. Thank you very much.

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

Thanks very much and congrats with yet another strong set of results. After your second quarter results you mentioned that everything has just gone your way and you couldn’t hardly imagine a better quarter with the gross margin of some 600 basis points, if we now clean up for the write downs that you're taking there - here in this quarter we actually see the underlying gross margin being up 4% or so around 400 basis points. Is there something extraordinary in this or is this merely an expression of leverage and improved efficiency in the business. That's my first question please.

Yes, and when you look at Q2 and Q3, I agree we have managed to deliver very high gross profit margins in those two quarters, but that is also a reflection of the high activity level and the volume increase that you see in those two quarters, because simply because of high activity level you have very high absorption and that obviously have a positive impact on the gross profit. So that is something that I again yet again want to highlight. Then we did write down all of the older projects that we have still by €54 million and then you can look at the write downs as an extra ordinary event or you look at that as something we do on a regular basis just to make sure that we have clean books also going forward, but it is a volume impact on the gross margin and that is well reflected the both in Q2 and Q3.

Okay. Then just another margin question, the service margin though still being solid it comes out a bit lower than we would expect here in the quarter, can you explain what's happening there please?

And that also is a reflection of the lumpiness that we have alluded to earlier, you see a fairly low activity level in the quarter. We also have two acquisitions that are not fully integrated so they have a negative impact on the overall margins simply because they have a fairly high cost base compared to the size of their contribution. So all in all we're not happy with the 14% but it's also shows that in Q2 we delivered 18% in this quarter 4% below. So it is a reflection of the lumpiness, but we are overall content with the underlying performance of the business.

Okay. And going forward we would still expect some 17%, 18% or so?

I mean our intention is obviously to be at the levels that we come from. But remember that the two acquisitions will not be fully integrated until end of next year.

Understood. Thanks a lot Marika.

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

Good morning Anders, good morning Marika. Two questions from my side as well please. So if you look at the PTC orders that you've received to date which run in the mid 600 megawatts range. How would you characterize the portion of delivery that you expect to execute from those orders in 2017 that be question one, how that was clear?

I think it's - I mean we’re not going into too much detail, of course it's between us and the customer and of course it is a very high activity level in the U.S. now to sort of secure order and part of your competitiveness is of course when you can deliver as well. So I don't want to go into too much detail on that. But as you know there is a 105 day period so to speak after orders and delivery so of course the sooner the orders and of course this 660 are ticking so to speak once the order is there and the down payment is down one 105 days are ticking. So of course for us and for all planning purpose as well it's of course a good to start to deliver immediately. So I think on that you should assume that the majority will be in 2016.

Okay I understand. It's just that if I look at the Americas order intake which is down 25%. I can't help but notice that you know if this were a regular PTC year if you like of the time that we had in 2015 the 23% number would look a lot different and I think there is some level of confusion in the market perhaps as to what is the true economic value of the orders that you've taken so far year to date. Clearly we know from the mid-American order that 200 megawatt or you received this year actually corresponds to something like two gigawatts over the next four years right. So I’m just trying to gauge and I was hoping for steer from you as to what you're seeing that the it on a like for like basis the order book development in the U.S. has actually been?

Yeah, I think it is of course very hard to do or like for like, because of course it's a complete different P2C cycle this year. So I mean it's up to 2020 of course. So it is very whole to do a like for like, because the scenario is completely different. I think what my main point would be that we see U.S. as a very, very strong market up to 2020. We for sure and I actually believe it will be strong be on that as well, but I think it's fair to say that everyone is focusing now on the 100% P2C cycle for us, so up to 2020, so we see a very strong U.S. market. And as I said, I think we are an external sources believe it's around 50 to 60 gigawatts during this period in time. But I also think it's felt to believe that if you look at the facing on delivery. We will see it build up over time as well so 2017 will be a bit lower and then volumes result to build up. So I think it's such a different scenario from previous P2C cycles that was very late in the year and was yes for one year it's very hard to do year-one-year comparison. I think what you're saying that the sort of rule of thumb that 10% P2C component scale up as you said it for us or if you have a 200 megawatt P2C order for the customer that’s scale up to 2 gigawatt project, I think that rule of thumb is still there for sure.

Okay thank you so much. Those who are my two questions, I'll go back in the queue afterwards. Thank you.

Thank you. Our want next question comes from the line of Dan Togo of Handelsbanken Capital Markets. Please go ahead. Your line is now open.

Thank you. A couple questions from me as well. As you’re guiding here clearly for low activity in the U.S. in 2017 do you see any markets outside the U.S. of course that can compensate for that low activity so that we can expect all modest flex activity level in 2017 compared to 2016 or your simply guiding for or low activity put us in 2017 compared to 2016? That's the first question.

No I was, I mean I will not comment on our expectation on low activity levels overall next year, I will only comment on what I said what we see in the U.S. market specifically, and of course that has a big impact on Vestas overall. If I look at the other regions of market I would say EMEA is very stable as we have talked about before. We have a positive order nine month actually compared to last year. So there is a lot of movements within the individual markets but overall we see a stable development. An in Asia-Pacific of course from a lower level, we also see a fairly stable market. So I will not go into to do any kind of outlook for overall Vestas for next year. That we will come back to in after Q4 as normal.

Okay. Then just question GP [ph] and you do GP of course high due to the higher revenue but you also in the report indicates that the mix has been favorable underneath can you give some more flavor on that favorable mix what has turned out more favorable?

Yeah, and it is basically the same components as we alluded for in Q2 when it comes to the gross profit the impact, volume is obviously again due to absorption having a positive impact. You also see a positive impact from the mix as you're saying and we have written and mix in this case is scope of projects in particular and type of turbines in any a country. So it is over all the projects that have panned out very favorable for us. We also have a continued journey on the cost out which also have been performing according to plan also in this quarter. So it's all of those parameter that brings us to a positive gross profit.

Okay. Thank you.

Thank you. Our next question comes from the line of Akash Gupta of JP Morgan. Please go ahead. Your line is now open.

Yeah, hi good morning, and thanks for taking my question. My first question is also on U.S. and there I have noted that there hasn't been any announcement by you or your peers in last many weeks in on orders, and I'm wondering how much of that slowdown is due to elections, and maybe if you can talk about what to expect if there are any surprise to election outcome compared to what the exit polls are saying?

No I don't think so. I don't know, I mean it really want to us, but I don't think so. I mean as I said the activity level is really, really high in the U.S. I was there myself two weeks ago and met a lot of customers and potential customers and there was sort - yeah it didn’t - it was never part of the discussion the election actually. So I don't I don't say that. And to just reiterate what I said before and maybe I said the wrong numbers, but I mean we see the U.S. being a very large and stable market in current P2C cycles, so between 40 gigawatt and 50 gigawatt and our focus for the time being is of course to look in as much possible all of that market share as we can know and that is both P2C qualification components if customer wants to go that route and it is continuous construction if customer wants to take that route. So that is the discussions that we have for the moment. And as I said, I really don't know what's of course in the customers mind, but at least in order to discussions, I had to two weeks ago it was never mentioned that they wait for the election results.

Thank you. And my second question is on services there was a step down in margins in Q3 and you still expect flattish margin for the stable margins for the U.S. So does that mean that we should see a step up in Q4 service profitability, and also if you can help us better understand what is the underlying service growth in your business given the two acquisition and currency move?

Yeah. So all in all as you say, we delivered 14% in the quarter, last quarter Q2 we deliver 18%. We have always been clear on that there is certain lumpiness in between the quarters as they will margins would clearly be in the range of Q2 as we see it. But also remember that there is a negative impact from the two acquisitions that we made simply because they are not fully integrated at this point. Underlying when we say that we underlying business is performing well and we are satisfied with that is that we see order intake increasing by 21% so I say the right number now, so obviously there is a strong growth underneath even if we have a slight drawback in this quarter that we're not satisfied with.

Thank you.

Thank you. Our next question comes from the line of Phuc Nguyen of Citi. Please go ahead. Your line is now open.

Hi it’s Phuc. Thanks for taking my question guys. The first one is on order intake in Q4, the spin for the week so far in the quarter in terms of announce orders what we're seeing, what do you expect for the full Q4 and in connection with that U.S. orders you mentioned you think there's going to be a market size or external consultant say there's a market size of 50 gigawatts to 60 gigawatts between 2017 and 2020. What market share do you think you can get of that?

I corrected myself on the last question. So I’d say and we believe between 40 gigawatts and 50 gigawatts in the period 2017 to 2020 is to be clear on that and I sorry, that I said the wrong number first. We will not give any outlook for Q4 order intake, we stick to the principle we have that we will announce orders when they become firm and unconditional. I'm very satisfied with our market share in the U.S. If you look at external estimates we are somewhere 400% maybe plus minus 5% and that is an improvement from around 10% three years ago. So I'm really happy with the performance we have in the U.S. market and our ability to take market share and where we are today.

Okay, can you give us maybe just on that 30% plus minus 5% the more upside or more down side that number you are at?

No, I think that I mean the reason why I say plus minus 5% is that, I think it if you look also I think still on the reporting on market share which of course is what we are looking at they vary a bit because some look at delivery, some look at connected to the grid. It can vary because of the projects so big it can vary a little bit overtime, so we can have a period of sort of Vestas project during six months and then all market share shoots up a bit. So I think that's why I say that there is uncertainty probably around plus minus 5%. And again I would not predict our market share going forward, I cannot say that I'm really satisfied with the development that we've had and the increase that we see in the last three years and of course our ambition is always to do to do better, and then we'll see it's a competitive market for sure.

Okay. Sure thank you. And my second question that is on the gross margin do you expect to stay on the 20% adjusted that you achieved for the quarter as a run rate going into 2017 and also maybe you can give a bit of color around how much of that the high gross margin you achieving this year so far, is due to the high utilization that you see in 2016 so far.

So we are not I would say rather that the 18% that we delivered last year is gross profit margin. We have been clear that we see an improvement from that level then I would say Q2 and Q3 is clearly high volume quarters. So generally contributing to the high gross profit margin, but you will also see impact from a cost out you will see again the absorption from the high volume, but you will also see positive mix from projects you will see impact from the service margin in any given quarter. The only thing I can confirm is that we're anticipating an improvement for full year 2016 compared to 2015 where exited with 18%.

Okay thanks guy.

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

I have two questions from my side. Firstly on the activity levels, I mean you're very clear about the short term high activity levels in the U.S. at the moment, but how do you see in EMEA short term progressing, if I look at your order intake for the first nine months, and strip out the big region orders then your order intake premier is actually down compared to last year, and how should we expect the full year to get up? That’s my first question please.

Yeah, as I said I think EMEA is stable region, I mean it's a lot of counties in that region and we for sure see up and downs, but if I look at it's combined on first nine months we see a stable region, of course you can strip out certain orders, but I mean it's orders we prefer to keep to me in. And I mean there is a lot of ups and downs as we have talked about then we see a strong development in Germany we see a strong development in most like France and so on. We see markets like Poland going the other direction. We see opportunities in Middle East, we see improvements for example in Morocco. So overall it's I would say with a lot of movement within this specific county it’s up to the some as a stable region. And then as usual I will not forecast Q4 orders. So we stick to the policy. We have that we announce them when they become from an unconditional. Big region with a lot of movements within specific markets, but overall then we see a stable development which I think will also show us in our own actual numbers.

Okay. And then a question to Marika on the margin guidance for the full year. If I do the math then you are basically guiding for an EBIT margin of somewhere between 12.5% to 15,5% for Q4, I mean the low end at least seems quite conservative compared to what you've been delivering historically in Q4, but also compared to what you've been delivering in the last few quarters, any comments to why margins could land in the lower end of your range here?

We have given you the range for the full year. You obviously have the nine month results so any anticipation I guess you can calculate yourself in terms of realistic or not. The guidance that we have given now is the outlook for the full year and we will not guide any specific form for Q4 of 2016.

Okay have to been any specific events in Q4 or can you just merely see in your backlog that contribution margins are significantly lower than what were the volumes you’ve been executing for the last few quarters.

I can only answer again that we have given you the range that is our best estimate at this point in what we see that we have ahead of us.

I understand the maybe could a range, but I'm just trying to understand the dynamics behind the lower end of guidance if there is anything specific, which is impacting, which we should be aware of?

No it’s nothing specific is just regular business you will see, I mean it's a later part of the year we going be the pendant on whether as we are every year. And if things pan out to our favor in that respect, we perform as we have done in some quarters if whether is not that good, is going to have an impact on what we can is install. So I mean we just have to wait and see as we get closer to the yearend, so far weather have been working in our favor and hopefully let’s hope for the remainder of the year as well.

Okay, thank you very much.

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

Hi, thanks for taking my questions. Alok Katre from Societe Generale. I have a couple actually as well. Firstly on the services side, could you just talk about what's happening over there if exclude let's say I will on an up wind then the service growth that I come on to is probably on those single digits. And I get to the same result again for the second quarter as well. The backlog is also flat year-on-year, some just trying got square that with a strong penetration and food service orders for the past several quarters. And also the higher installed base and the related thing is also the margins if I exclude the inventory right down last year than actually profits sort of been down year-on-year. So just trying to understand what's happening there is it just a way the pricing on services is being done particularly in the U.S. or is there something else?

Okay so in general as I said earlier I mean we were fully aware of that 14% is not a satisfactory level, and we have no intention of staying at that level, and again you saw last quarter i.e. Q2 of this year, we delivered 18%. You have an impact from the two acquisitions on profitability level and that's simply because of them being fairly small with the in comparison a high cost level. We’re working on the integration and I would say the integration is performing according to plan, but we will not be fully integrated until the later part of the next year, so that's when we will be able to see less of a dilutive effect from the acquisitions. And if I look at the underlying business performance, yes I agree with most of the two quarters that you have seen Q2 and Q3 the growth is bigger from the two acquisitions compared to the underlying growth from our own business. We also have how we recognize revenue creates certain lumpiness in the business activity, but underlying. If we look at the order backlog compared to last year you see solid growth. So we don't see any alarming fact that we see a slowdown in the service business as a whole. We will continue to build up as we have done previously.

And just clarifying on this, when you said there’s you know depending on how you recognize revenue that creates lumpiness, is that change versus what the level of recognition method was in the previous quarters.

And we have also - we obviously use the same methodology as previously, but there has always been lumpiness in between the quarters in the service business. And I mean if you have a quarter where you see a lower activity level obviously with smaller numbers compared to the VTG business. There will have an impact on the profitability. Therefore it is easier to look at 12 months rolling rather than single quarter and evaluate a single quarter in the service business.

Fair enough. And just on the margins, I know you’ve so probably don't want to specifically guide on Q4 and probably 2017. I just thinking one of the things that you’ve been mentioning is in the third quarter particularly a big portion of the margin again was driven by volume leverage. Should we then particularly for the U.S. in 2017 then assume that the reverse sort of the old crew as volumes sort of let’s say are weaker than we should give up some of the margins or is there any other regions what are reasons why we should think about the ability for us to still hold up margins in even when volumes have been or volumes can be lower?

I think that what we have said is obviously volume have an impact on the absorption rate that obviously becomes more positive when you have a very high activity level. Anders have been a very clear on our view next in particular how we interpret the external view on the U.S. markets. It is a long extension of the PTC, how profitability level will pan out. I think we have to come back to when we guided for 2017.

Okay. Fair enough. I will get back into queue. Thanks.

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

Yeah. Hello, Klaus Kehl. You’ve talked lot about the U.S. and EMEA et cetera. But could you were talk a little bit about what’s going on in South America and perhaps if you could a divided into two. First an update on Brazil, and secondly an update on yeah the other South American markets, Chile and Mexico et cetera that would be great? Thank you.

Yeah. Thank you. I think you in Brazil of course, we see a good delivery on the orders we’ve taken. We as you know I mean we are improving our local manufacturing capability in Brazil that is according to plan so we deliver both the turbines and the blades locally and how to qualify for the roads so that is in a ramp up process and perform according to plan. When it looks at the overall market, of course, we have seen delays in auctioning system that they have in Brazil. There is in anticipation that our auctions that were delayed will now happen towards the end of the year. I think, yeah remains to be same of course, but those are the official plans. So from an auction point of view, we have definitely seen delays in Brazil and you can of course always speculate in why it is there is of course the macro economy situation in Brazil. That is cumbersome and of course there are also been changes in the government. So I don’t I don’t think it’s a big surprise that auctions are being pushed in time on the other hand if you look at a bit more near term. You say that the electricity consumption is clearly growing in Brazil and also that wind is the most competitive source of new electricity. So some big question marks short term on auctions the macro development, but for me a very interesting market a bit more mid-term. Rest of Latin America, I would say that fairly stable I think their auction systems of course from no order side drives bit more lumpiness than when we had a fade in tariffs because of course now auctions are collected at certain times of the year and then you have an auction that we’ve seen for example in Mexico, is anything still everything in other Latin America. But the volume has been good, the drive through renewable energy, we do auction mechanist is there, but of course due to the auction systems you will of course see bit more lumpiness vendor auctions happen. Mexico specifically that was recently in auction I would say good overall outcome for wind, we of course participate with customers there and then yeah we remains to be same who were successful in the auction.

Okay. Thank you.

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

Good morning. I have two questions. Firstly, on your conversations with customers, I understand that customers will start talking to you about orders penciling out production slots up to two to three years ahead of when they may need to turbines. We’ve already moved to a system of competitive tendering and now it looks like ultimately we may move to a system where there were no subsidies at all. What are your customers saying do you fail that this will be an opportunity for them to install more or do you think it’s going to put pressure on the industry. And just secondly, with regards to your positioning within the industry. You’ve had four major competitors merge into two this has created a lot of uncertainty no doubt within those organizations if the key stuff particularly on the sale side and it would also have customers from placing orders. So just what kind of volume up lift do you think you’ve had or will have from this kind of uncertainty amongst your competitors?

Yeah. Two good questions and note that to give one clear answer to be very honest. But I think overall of course it’s positive that the competitiveness of wind compared to other sources is improving all the time. So of course it’s a positive development that we know or see in more and more markets where subsidies are not needed for wind to compete. One day other hand down of course we should also remember that the whole electricity market is regulated market. So of course what we would like to see is the subsidy free environment for all a level playing field and also even better if we actually could get the price on carbon that which is another discussion, which I think that there is a strong support for. So of course it’s a positive development overall to get to I would not call it subsidy free for wind, but a level playing failed and that we now see in more and more market in technology independent auction that wind takes its fair share without any type of political support. That will then result in an overall Asia market to predict hopefully because of course the challenge for the industry and what has contributed to a fairly cyclic industry in the past has been their dependence on regulation and political regulation that creates an uncertainty. So if you think good - the overall good thing really is that it’s a positive development, it’s gives hopefully then a more stable market outlook. So then exactly, what it means from volume point of view I think that’s a little bit order to say. One day competitor side, as I have commented on before I think it’s natural that this industry as it is maturing that we see consolidation among the players. Again I’m very confident in Vestas position we have a global reach, we have a technology and service leadership, and we have a scale that we will have to continue to build on and leverage in the new market scenario. I think currently it’s hard to draw any conclusion because these mergers are either yes to happening or we speak or plan to happen next year so of course, from it’s a bit early to draw any sort of short term conclusion of behavior in the market.

Okay. Thank you very much.

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

Thank you and good morning. My first question is on the CapEx, I know this is being creeping up through the year, and it employs a quite a - lot of CapEx in Q4 as well. I mean what is driving this you’ve contemplate acquisition on one side. But are there more acquisitions here planned and is this a kind of sustainable level going forward? Secondly, just a question on the U.S. market, you having to be more aggressive on pricing orders given there are more competitors this year and a comment on just how the competitive environment in the U.S. has changed compared to last year specifically in the previous PTC cycle? Thank you.

If I start with the CapEx, I would say that the CapEx levels if we exclude the acquisitions of Availon that is included in this year. I would say we are at a level that we - that is satisfactory and most of the investments that we have been making is really to follow the overall demand in the market. So it is in molds for the blades. So I think that the investments reflects very, very well the activity level, and what we also have said earlier is that the blades we actually or the molds we write them off in three years. So you run them flat out and that is why would we are doing it, not everything at the same time, but we’re doing it in pieces to make sure that we utilize them to the full extent. So I wouldn’t say anything surprising and we have also said that depending on where the market is, I mean we will continue to be at fairly low levels compared to the activity level that we see right now. So I think we have been extremely efficient in how we have adjusted to the higher activity level.

I mean to comment a bit on the prices as you saw in the quarter, the price per megawatt was fairly stable 0.88 and has been fairly stable for some time of course, it’s certainly not any increase in the average price per megawatt, but I would say a fairly stable level. I mean it’s a competitive market actually in all parts of the world. I mean it’s definitely compared to market, we have a lot of different competitors so and that goes for you as well. So it’s definitely a competitive market, but it’s also of course a lot of parameters in north as price that we complete it is in the end of the day, the level has crossed the way, that are - and therefore the sort of internal return rate that customers are looking at on the product. So price pay is of course one of the parameters, but there is several other parameters as well that you have to master in order to win the deal in this market.

Right. If I could just rephrase that, are you suggesting that there’s been no or little erosion of any competitive advantage on a cost of energy level of your offering versus your competitors?

I mean I feel that we have a very good competitive product portfolio. We have a very wide product portfolio. We have both 2 megawatt and 3 megawatt platform which means that we can fit and offer into different wind regimes, different sites. We have a very good manufacturing footprint, which means that we can optimize where we get supply from and therefore transportation costs. And but those are things that we constantly have to stay on our toes on and constantly work on in order to maintain our good position in a very competitive market.

Thank you.

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

Yeah. Hi. Good morning thanks for taking my questions. I have two questions. The first one is on you just around profiling between 2016 and 2017 you’ve upgraded your 2016 revenue outlook quite significantly over the last year. And can you explain to us if you had any sort of way around on the delivery whether you could do it in 2017 versus 2016. Clearly 2016 have been very good, but did you really have to do it did it have to be so good. Could you have shifted some projects into 2017 if that meet the year-on-year look somewhat better for that my first question? And the second question is just around Egypt. I know it, let a sort of MOU stage right now in order, but in the meantime obviously you’ve had had quite a big devaluation of the currency there. So any comments on that would be useful. Thank you so much.

Okay. If I take your first question, Pinaki, I think I understand where are you coming from, but obviously we deliver the projects to make sure that we are efficient in terms of our working capital and also to the need of the customer, so there’s nothing we can shift around is that your question we’re doing what we’re what we’re asked to do in terms of customer requirements when it comes to deliveries. I’m not sure I got the second question.

I can comment on that.

Yeah.

I mean Egypt, we are in the early business development phase as you alluded to us well. So I mean there is a great potential both when it comes to wind resources in the market and also the need for electricity, the growth in consumption is around 7% to 8% per year. But it early development phase that we already and so we will continue to work on that, and once we have form and conditional orders if that happens then we will come back to announce that. So I think it does as a great potential and of course there are also challenges that needs to go overcome before it materialize.

Thank you.

I think we are in last question.

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

Hi, guys. Two questions from me. We saw recently a letter have been signed by Goldwind in the U.S. just wanted to know if this was something that Vestas was competing for and if so where there something specific about this deal that demand that you simply couldn’t win this? And secondly my question is on the German market, just wanted a bit more color on activity specifically on the Southern Germany region given some positive news coming from one or two of your competitors in that particular region? Thanks.

Yeah. No it was not an order that we compete it on. So I honestly don’t know much about the customer order. So but it was not something that was on our radar screen. I also read a notice somewhere, but that was the first I heard of it so. So I think it’s more a question today I’m on one day order, but it was not something that we were aware of. On the German market, I don’t know exactly what the competition have said, but it our view of the German market, and I think shows in the numbers as well both on delivery side and the order intake side is that we see a strong German market. And as we have said before, how it will pan out for next year, I think remains to be same it is very much up to I mean the auction is coming in April, May of 2017. If you qualify and have the permitting before the auction you would qualify in the - all the setup that’s also have the falling fade in tariff, and of course it will very much depend on customers now then qualifying for permitting. ,:

Okay. Thank you.

Okay, then I would like to thank you all for calling in. Thank you for your interest and I am sure I will see at least some of you in the next couple of days. So thank you very much.