Q3 2024 Vestas Wind Systems A/S Earnings Call
Good morning, and welcome to our presentation of our Q3 2024.
Surely it's a special day with circumstances later in the U S. A fifth of November election day, I'm sure, we'll talk more about that.
Can I also hear just take the opportunity to thank our partners customers and also many of our new and old colleagues for the execution in a busy Q3 and also a very busy and patch a Q4 in this year where that likes to go to our key highlights.
For Q3 2024.
So we had revenue of five point to a 1 billion euros are it's an increase of 19% year on year driven by higher prices.
And higher volumes on the deliveries, we had an EBIT margin of 4.5% high activity and then the other line performance improved EBIT margin by almost three percentage points year on year.
The service EBIT margin ended at 16% and the service profitability reflects the ongoing scrutiny to improve the operational efficiency will speak more about that later on.
The order intake ended at four four gigawatt, a flat order intake year on year leads to an all time high turbine backlog of more than 28 billion euros in the quarter.
Then we are ramping up manufacturing in the U S and in Europe and that means also we are onboarding colleagues and ramping up its also always challenging but we also continue to make progress in both the on and offshore.
And then of course for the outlook 2020 for revenue and EBIT margin guidance maintained with adjustments to the service EBIT is a reflection of the quarter and the total investments who will speak more about that in the end.
Yeah.
Speaker Change: I'd like to take you through what is the current business environment. We are we are seeing and experiencing on the global environment, we still see raw material and transport costs being stable of course with the regional variations to that theme of being on the ongoing geopolitical and trade volatility I think.
Speaker Change: It almost speaks for itself because of course, we see a number of discussions and also in the current election, we see that being discussed.
Speaker Change: The overall inflation is a world of declining but there are still specific components that are rising or having a variable to that theme as well.
Speaker Change: On the market environment, our grid investment as being discussed also prioritized in key markets, but often are building on a weaker foundation on the grid.
Speaker Change: Permitting is improving in some markets, he has especially Germany and UK.
Speaker Change: But over all the permitting auctions and grid I still proving to be challenging factors when we see projects being up for permitting oh for that matter through the transmission on the grid.
Speaker Change: On the project level site, a Q3, we've seen some regional disruptions continues to threaten supply chain, we had a bit of a stop and go in and around the defrayed Alpha strike in part of the U E U S harvest.
Speaker Change: But then I saw outside that we actually seen a pretty stable and a good execution. In Q3. Then of course, we also continued to see the execution of the low margin projects that are finishing by enough. This year and of course, we welcome that and you can also see from Q2 to Q3, our improvement in the power.
Speaker Change: Solution business.
So with that power solution I think heading here Q3 is still commercial discipline maintained so when we look at the Q3 order intake of four four gigawatt that was stable compared to last year, good market activity with dream by onshore in all regions as well as to offshore projects, including <unk>.
First offshore project in the U S.
Speaker Change: D E S. P on new orders was $1 1 million of euro per megawatt in the quarter.
Speaker Change: And the order backlog in power solution increased to an all time high of $28 3 billion of almost 7 billion compared to last year as our energy solutions continue to have good traction with customers across our core markets as you'll be able to see here to the right.
Oh, so just once here to make a bit of a special shout out for Germany and to some extent the U S. Often you don't see Germany due to the order size, but of course here, increasing and also seeing an important part of the 700 megawatts of unannounced orders in the quarter and it's a market where there is a real.
Speaker Change: Traction in a real ramp up in volume are directed from the current government.
Speaker Change: With that service in Q3, 24, clearly the operational efficiency is high on everyone's agenda. We are scrutinizing the service business to address the cost too high it will take time to fix but several steps have been taken including them, including some organizational changes.
Speaker Change: In the service business.
Speaker Change: The service order backlog increased to $35 1 billion euros up from 32.24 billion a year ago at.
Speaker Change: At the end of Q3 business had 154 gigawatt on the act to service contracts you can see the splits are India and to the right here and again here our average contract duration is sitting at 11 11 years.
Speaker Change: Then on the service side divest this development.
Speaker Change: In Q3, so generating good order intake and investors a development. So in Q3 versus development generated 324 megawatt of order intake for Vestas, including the announced Lotus Creek Wind farm in Australia.
Speaker Change: Noticed creagh is the first project developed by Vestas development in Australia to reach financial close and construction readiness, we look forward to delivering the first turbines to our customer which is C. S entity in 2020.
Speaker Change: 26.
Speaker Change: At the end of Q3 versus pipeline of development projects amounted to 28 gigawatt with Australia U S and Brazil, holding the largest opportunities you'll see the breakdown here to the right and as it goes without saying as we said also in the previous quarters discipline on development projects is also key.
Speaker Change: With some of the macroeconomics that changed from the increasing interest having said that in the key markets any development project that gets to a permitted status is actually in very high value with our partners, which we then offer across our.
Speaker Change: Group of partners in the regions.
Speaker Change: Where that's likes to go to sustainability in Q3, and so the lifetime C. O. Two avoided by produced and shipped capacity increased by 45 million tons compared to a year ago, you can see that to the right. The carbon emissions from our own operations increased by 4000 tons year on year due.
Speaker Change: Two increased activity predominantly in service, but also in the offshore services and construction.
Speaker Change: Number of recordable injuries per million working hours declined to 2.8, we tie as Lee work to improve our safety performance across our entire value chain and I'll also he has mentioned in especially it's important.
Speaker Change: For us a quarter on quarter, when we onboard so many new colleagues, you'll see that we have now passed 43000 colleagues globally, which is a reflection of the ramp up that happens in both the on and offshore. So that also means arriving are working and returning safely to their families for any investors.
Speaker Change: Remember here and colleague is key for US with that finished for my section I'll pass over to Hans on the financials.
Hans: Thank you Henrik.
Hans: And we are.
Hans: Go straight to the income statement wherever you can see that revenue increased 19% year on year, driven by the higher volumes and the average pricing that we have been pushing through in the last couple of years when I try a bunch of levers and power solutions gross margin was.
Hans: <unk> was 10, 5% that's roughly a two five percentage points increase from the eight 1% we were at last year.
Hans: <unk> was driven by increased activity and better underlying performance in the power solutions segment, but then slightly offset by lower profitability in service.
Hans: EBIT before special items tripled to 235 for them and in neuroscience from the roughly 70 million in U S. We had last year.
Hans: Equivalent to a margin of four 5% of this resource and importantly in our return on capital employment improvement.
Hans: More than nine percentage points, so that takes us to the 2.1 that you can see over there on the table.
Hans: In the power solutions segment, our revenue increased by 24% year on year, driven by higher deliveries across many markets, such as Canada, Germany and France.
Hans:
Hans: But also by the higher average pricing that we're seeing on the deliveries EBIT.
Hans: EBIT margin before special items improved five percentage points year on year to four 2%.
Hans: Driven by the improved profitability are they good project execution and the benefits from the operating leverage that I also mentioned before on the activity level side.
Hans: Nonetheless in the quarter as we've said before our profitability is still hampered by completion of low margin projects from mid 2022 went earlier.
Hans: As we have also been talking to we expect these to be largely completed by the end of the year.
Hans: And service revenue declined 1% year on year in Q3 this regarding currency.
Hans: Revenues were on par with last year, but we are seeing though a contract activity being offset by higher transactional sales in the segment.
Hans: Service generators, and EBT margin of 16%, which corresponds to an EBIT in absolute euro terms of 148 million euros.
Hans: The service margin improved in Q3 compared to Q2 slightly lower slower than expected due to higher costs in EMEA and Americas regions that we expensed as part of the operations groups in a service that we initiated earlier this year and that you were also referring to earlier on your slides.
Hans: On the cash flow.
Hans: Operating cash flow improved compared to last year to 89 million euros in the quarter driven by the improved profitability that we have observed.
Hans: Adjusted free cash flow amounted to minus 20 plentiful and that is also an improvement compared to last year and importantly, when we look at the year to date cash flow Ah that amounted to minus $6 99, but actually that is a 1 billion your improvement compared to the same period last year. This is also what you see in the table, that's where the rights are.
Hans: <unk> 10, and our net interest bearing position, which has also improved compared to where the one year ago.
Hans: That takes us to the net working capital.
Hans: Yeah.
Hans: Greece during Q3 due to a decrease in the level of customer down and milestone payments that will then partly offset by a reduction in inventory and so as you can see there on the slide to the right.
Hans: Generally I would say we are looking at the usual working capital release I expect that in the last quarter for a year or so and in lot of ways reflects the typical way of our fastest works.
Hans: Going through the investments, we can see that they amounted to 272 million euros in Q3.
Hans: We are facing ramp up challenges in both the offshore and the onshore segment, but we also continue to make progress on our you know ramp to 236 offshore manufacturing platform in Europe remains a considerable driver of these investments as we prepare for the first deliveries to the true protects Hittite and Baltic power, whereas in the U S. On the onshore sites our production has increased.
Hans: We have added extra shifts that allows us to utilize a lots of share if our capacity and our footprint that we have in the American market.
Hans: That takes us to provisions and L. P F where we can see that the L. P. F continues to improve which is a sign that our continued and increased focus on quality. In recent years is working and over time of course and improved L. P. F should also lead to lower warranty provisions, but in the quarter. We have made a specific.
Hans: Provision for an offshore related component at two sites and this is the main driver for the elevated warranty cost that you can see here.
Hans: Once your costs amounted to 313 million euros in the quarter that corresponds to 6% of revenue, but actually that is on par with what we had last year.
Hans: Yeah.
Hans: That takes us to the final slide in the financial section of the capital structure.
Hans: Where we can see that as a combination of the better profitability that I've spoken to as well as the cash flow.
Hans: We have improved our net debt to EBITDA that nsaids <unk> nine.
Hans: Pets with a $3 six we were at a year ago, Let me find dimension, a Moody's investment grade rating of B, a tool that has a stable group.
Hans: And then I.
Hans: Give you back them remote can I come back to you. Thank you so much sense.
Hans: Okay.
Hans: And therefore, <unk> and therefore to the to the outlook for the year. Our revenue is in the range of <unk> 16, and a half to 17 enough.
Aliens.
Hans: With the with the Q4 remaining and the EBIT margin before special items is sitting at 45%.
Speaker Change: You're also saying that the low end is more likely with the adjustment we also here.
Speaker Change: Showing on the on the EBIT from the service business to now be around $450 million, where we previously had $500 million. When we came out of August Q2.
Speaker Change: Investment is hence already mentioned, we're saying approximately 1 billion versus the previous one which was $1 2 billion.
Speaker Change: And of course, all of that based on the on the current foreign exchange rates as we see it currently and of course as is also looking into.
Speaker Change: A busy Q4 ahead of us with that and thank.
Speaker Change: Thank you so much and I will pass it to the operator and of course, the Q&A with that.
Speaker Change: We will now begin the question and answer session.
One who wishes to ask a question press star and one on the telephone.
Speaker Change: You will hear a tone to confirm that you have entered the queue.
Speaker Change: If you wish to remove yourself from the question queue, you May press Star NT.
Speaker Change: Question is on the phone are requested to disable the loudspeaker mode. While asking a question anyone who has a question you May press star and one at this time.
Speaker Change: The next question is from Martin Wilkie from Citi. Please go ahead.
Martin Wilkie: Hey, good morning. Thank you it's Martin from Citi. The first question I had was on the service business. It looks like from your guidance that you are implying at the margins in the fourth quarter back up to close to 20% because if you can just confirm my math is correct on that one and what gets you there.
Speaker Change: You can understand a little bit more.
Martin Wilkie: What drove the weaker margin.
Martin Wilkie: Third quarter was a sort of mini version of what you had in Q2 with a reassessment of cost over the life of the contracts were there. Some other factors attracted to them. So just to understand in a bit more detail what product margin down 16% in the quarter and why then rebounds in Q4. Thank you.
Speaker Change: Yeah. So thanks for the question Martin first of all.
Speaker Change: Long story short I can also make the calculation and you are making and of course.
Speaker Change: Can be a degree of variability in it but of course that there are moving parts.
Speaker Change: But on the margin side that is kind of how you should think about Q4.
Speaker Change: In rough terms. So that's I guess the first question question too then on what drove the 16%.
Speaker Change: I guess it is a lot of the same things as you saw in.
In Q2 as well we have been scrutinizing the business, that's what's that's and as part of that we can see still that are there are say continued inflationary pressures and some of the same issues some quality.
Speaker Change: Well as I.
Speaker Change: Say efficiency.
Speaker Change: What do you call. It mechanics that were still working on so in a lot of ways.
Speaker Change: It's pretty much the same things although of course at a much much lower level here and then intra even what you're adding them too.
Speaker Change: I'd like to highlight at the same time, we associate that service business is a good business, but of course as we have also been saying.
Speaker Change: It it's going to take time to scrutinize and work with these things. That's that's also clear.
Speaker Change: And just on that point, taking time does that mean that there are more contracts that will get incrementally scrutinized over the coming quarters or is it just more that you've now sort of reset the expected gross margins in those contracts.
Speaker Change: Actually activity takes time just to understand what the overtime means in terms of how we should think about the profitability of the business.
Speaker Change: Of course, we are let's say working with and scrutinizing in assessing the business and that means that in this quarter.
Speaker Change: That has led to the 16% margin that we had.
Speaker Change: We at the same time.
Speaker Change: The ambition or having the ambition that we want to improve the business and do better.
Speaker Change: But in this quarter are scrutinizing has led to that and say the lower than expected margin that you can see there.
Speaker Change: Okay. Thank you very much and if I had a question on power solutions as well again, you've got a sharp pickup in margins implied in the fourth quarter.
Can we sort of infer from that that the warranty provision that you saw in Q3 was kind of a one off and therefore, you're expecting us to go sort of back on track with the phasing of the backlog improvement. So forth then leading to that pickup in profit in the fourth quarter.
Speaker Change: Thanks, Marty and I think that you can assume.
Speaker Change: And I think he also you can see with the with the detail we are providing on a on a both the Lps and also on the warranties that it is a specific case and you will see of course, the warranty provision being made in Q3, and then we will consume because the repair and replacement is on the way in the following couple of quarters. So that's a fair assumption.
Speaker Change: And of course, then we have a visibility of what we are executing on in the power solution for Q4, which so far is a is very positive.
Speaker Change: Great. Thank you very much.
Speaker Change: The next question is from Chris Center enough from Seb. Please go ahead.
Chris Center: Yes. Thank you also a couple of questions from me.
Speaker Change: Right.
Chris Center: Just to get back to the years service cost here.
Chris Center: You also mentioned organizational changes so is there an element of sort of restructuring costs in the quarter as well, which also explains why the margin was better in Q4.
Speaker Change: And no not in that sense no. When you talk about organizational changes it literally about who has had what responsibilities and what that has led to a two changes in our in our across our across all five regions and also across the service business.
Chris Center: Yes.
Chris Center: Okay.
Understood.
Chris Center: Then.
Contract assets.
Chris Center: Got.
Chris Center: Increased versus Q2.
Speaker Change: So I would expect that your inflation indexation contracts would eventually start to accelerate your billings and hence make it go down rather than go up. So so can you just.
Chris Center: Help us a bit on the dynamics here.
Speaker Change: So on the contract assets, it's true they increased in Q3, but let me make clear that the majority of this increase was actually from the power solutions business and not from the service business.
Speaker Change: You'll get more details on this in Q4, when we reported.
Speaker Change: As part of our disclosure there are as we always do when the in the annual report.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: That makes sense.
Speaker Change: And then just my last question on U S order intake and sort of your expectations for the end of the year and whether there is any.
Speaker Change: Variability to your ex.
Speaker Change: Spectation, depending on today's outcome.
I don't think there's any of the order intake that is depending on today's election Christian I think anything that gets the permits Ada also will get a great great approval in the U S gets built.
Speaker Change: Very fast there is a general need and also demand higher than the supply right now for new Green electrons.
My mother things to data centers and others. So in the U S.
Speaker Change: That runs as we will see and so far so so good this year and as you can also see here we've.
We've had a steady flow of orders in Q3, and we expect to see some of the same thing in Q4.
Speaker Change: Yeah.
Speaker Change: Understood. Thank you.
Speaker Change: The next question is from cloud Palmer from Nordea. Please.
Speaker Change: Please go ahead.
Speaker Change: Thank you Yeah also a few question from my side. The first is like a Christian about the outcome of the election, not when spot or for you.
cloud Palmer: How should we think about the conversion of pipeline to firm orders in Q4 should we expect kind of what we saw in Q4 last year or are we at a different level.
The first question.
cloud Palmer: Thank you Sir.
Speaker Change: I was just about to reply back and your guess is as good as mine, but I think as you also what I appreciate.
We worked diligently with the with the order intake last year as we also said there was some larger orders that came through late in Q4, and there will always be some of those larger balances. There. So I think the more importantly for US is that you see the steady flow of the orders in general and Thats, what you should.
Speaker Change: Be expecting then we don't comment on the other things because we simply can't predict it.
Speaker Change: If some of the larger things come through icon icon say and we don't give that guidance.
We got 60 days 60 days, a little less to 30 <unk> of December and guess, what we will do everything we can to progress Tijuana as in the U S. A.
Speaker Change: We'd say, which I know because we had our reading the CEO here in Copenhagen yesterday and today. So she is returning Tonight.
Speaker Change: Yeah.
Speaker Change: Maybe.
Speaker Change: Let me try to get a bit of color to this issue.
Sure looking at your pipeline that the conversion of project is going as hopeful is could we see a order take like last year or that's totally out of the question.
Speaker Change: And Klaus I.
Comment on it because.
Speaker Change: Right now it is like this whenever the project has a.
Speaker Change: All of the grid.
Speaker Change: You generally see it moving immediately to end FY <unk> with the partners. So so projects are just unfortunately, some of them are being held in the Q and a list at Qs comes through before 30 versus December Pavel Ida disappoint or guide you wrong I think.
Speaker Change: On some of these things the majority of the volume comes from the average size and then you get some of these things, which I won't I won't predict on the average size will just continue running with stable volume as you have seen in the in the last quarters.
Speaker Change: Okay. It was worth a try.
Speaker Change: My second question is also well enough.
The contract assets.
Speaker Change: So the main driver behind the growth versus Q2 is the power solutions what is behind that growth.
Speaker Change: As I said before cloud so we come back to <unk>.
Speaker Change: A more detailed disclosure on that figure once we report for Q4 as we always do.
Speaker Change: Then you'll get a lot more details in the annual report about what goes into that category.
I'm not asking about the numbers, but just bought.
Speaker Change: The reasons why why why it went up in Q3, that's more one of asking for.
Speaker Change: It's part of the normal development you see finishing.
Speaker Change: Projects in Q4 class, but we can give you. Some more details are also as we get done with Q4.
Speaker Change: Okay.
Speaker Change: That was all from my side.
Next question is from Deepa <unk> from Bernstein. Please go ahead.
Deepa: Thank you I had two questions. So firstly just on the.
Speaker Change: Guidance.
Great going towards the lower end of the day to confirm this is because you expect the service costs to be hired Andy.
Speaker Change: Extra warranty provision that you've made on offshore is that the main drivers. So if you could just confirm that secondly, it is related to the U S. As you know one of the candidates is very keen on importing Paris could you confirm for your U S.
Speaker Change: What proportion of the Cogs comes from outside the U S.
Speaker Change: And particularly China.
Speaker Change: Yeah.
So on the first one.
Speaker Change: Yeah.
Speaker Change: Obviously, when you have the impact that we're seeing in this quarter from the blocks that you mentioned that also has an impact on the guidance range that we're looking at I think that's quite obvious.
Speaker Change: So I think that's in a nutshell the answer to the first question.
Speaker Change: And then on the split of the costs that we're seeing in between geographies.
Speaker Change: That's not something that we are typically disclosing from arent. So I don't have like a straight out on something thats at this point.
Speaker Change: Sorry, if I may just have a follow up on that so if the USA status point would there be any way for you to parse those talents to your customers for the orders you've already received or would that be margin dilutive.
Speaker Change: Deep did that that is simply to two specific specific because you were founded we also found it in with the current administration. They also imposed increasing tariffs. So I think from learning from the last two administrations in the U S. It has become a more natural part which is also why.
Speaker Change: You try.
Speaker Change: To exclude more and more volumes and more and more components from China region. When it is about the U S. Which is also an underlying strengths and also support for our ramp up of the U U S factories for exactly the same reasons.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question is from <unk> Patel from Goldman Sachs. Please go ahead.
Speaker Change: Morning.
Speaker Change: Thank you for taking my questions.
Patel: Okay, Let me start off with just.
The guidance so.
Speaker Change: I think today the feedback I'm getting from clients is the service margin was a disappointing relative to that 18%, 20% guide that we may be talking at Q2.
And then another question I'm getting is more of a sort of <unk>.
Speaker Change: Implications of 12% potential margin in power solutions in Q4, which is what's implied in the guidance. So the two things I sort of want to ask is firstly on service.
Speaker Change: Is that 18% to 20% guide that you were giving Q2 still apply and that it's basically Q3, that's been hampered by additional costs are more of a one off and that the trajectory. We should think medium term is still of that order of magnitude.
Speaker Change: And then secondly on the pilot solution side, what proportion of Q4.
Speaker Change: Is hampered by a legacy project is it similar to Q3, because if you're potentially obtaining a 12% margin at the bottom end of.
Speaker Change: The guidance range that doesn't really bode well quite strongly for 25.
Speaker Change: So I just want to understand if there is anything that maybe is distortive of that number.
Speaker Change: That would help us try to think about the more medium term profit evolution of this business.
Speaker Change: Then on warranty costs is there any chance you could give us what the warranty cost.
Speaker Change: The proportion of revenue would have been without the offshore adjustments. So that we can get a better idea of the underlying trend.
Speaker Change: Whether there may be one that has a one off charge.
Speaker Change: Thank you Ajay I'll start in the reverse order.
Speaker Change: Under under warranty cost I think we are giving an enormous breakdown in details of already what we're giving here.
Speaker Change: So when it is that that selected and that particularly a case, we won't give more a breakdown you got the previous quarters and we are pretty specific when we have exceptional cases like this one and then you're I'm sure you will do your own implied what the underlying.
Speaker Change: Could be because not much else has has changed India in the quarter.
Speaker Change: On the implied Q4 margin don't forget it is two quarters and we said all along for this year. Please don't make.
Set of averages or assumptions between quarters, because there'll be quarters there'll be projects.
Speaker Change: That is implied for the for the power solution I will give you that one that's a lot of questions happen in and around Q2 have we seen turning the corner in the power solutions and I think we delivered the evidence of that in Q3 that we are progressed five full plus base.
Speaker Change: <unk> points on the power solutions on the on the last four quarters on a pretty comparable term and that means in now in Q4, yes, we see increasing operating leverage of the volume. We also see a good traction and then I think for the first time at least in now a number of years, we see this execution.
Speaker Change: Where we have very little differences, when we execute and complete the projects. So for us that is actually what gives us the visibility in Q4, and you're absolutely right coming with the still the same commercial discipline of course. The power solution is also absolutely critical and key to get it.
Speaker Change: Running India, India onshore on the profitability so with that we're very very encouraged by it by Q3 on the outlook for service come on under one.
Together with handset as most.
Speaker Change: Sort of disappointed by that.
Speaker Change: We are sitting at 16% we seem to be doing the scrutiny. We are doing everything we can across the businesses. We're also going through at some of the places we have found.
Speaker Change: More inefficiencies or people that haven't done what they are supposed to be doing and I think that we are addressing and then of course. We are also addressing the underlying which is there are parts of the businesses where cost are running.
Speaker Change: Hi, or too high and that of course, we are we are we addressing it head on.
Speaker Change: It implies where we are now.
Speaker Change: But that too early to say after Q2 and was it 18 20. It came out at 16, we'll show you the percentages on the quarter as we go but we also now have to assume that it is a bit more cumbersome and a bit more turnaround situation and some of the businesses. We are working and that of course, we are addressing.
Speaker Change: Can I, just maybe just double check we have understood and.
Speaker Change: Service side is it fair to say that that assessment hasnt fully completed.
Speaker Change: There is a chance is that there may be incremental cost or telecom or is it that we've done a large portion of that work in Q3, and we move forward.
Speaker Change: Page 10 over and then on the OEM margin just to be specific I just wanted to make sure I understand Q.
Speaker Change: Q4, assuming next year you have exactly the same volumes they have the same benefit from operational leverage.
Speaker Change: Would we should we be thinking about margins improving from that implied margin just because there is no legacy projects, there or is that too simplistic to.
Speaker Change: Too simplistic and why is that because you get a inter quarter you always get now a balance between what areas are actually executing and there will be a there'll be differences you cant apply averages to this in the sense of thoughts I think we can also here for I assume that what we have been working in explaining.
Speaker Change: So tightly quarter on quarter for the last three and a half years to get the profitability and also the commercial discipline back in power solutions that we can probably say now Michigan completed and then on the percentage size.
Speaker Change: On a day like this where you've got a U S election, I still have to remind people. This is a pretty pretty volatile world well to execute projects in so so that's surely one on the on the service side. We are doing the diligent work. We are we are well progressed in its we have addressed where there are issues in wherever you find.
Speaker Change: And issues.
Speaker Change: We did that in Q2 as well therefore, it's also with some some disappointment that we say here in Q3, we are not where we where we want it to be but we are back at 16% and we will share and show that quarter on quarter with you going forward as well.
Speaker Change: Okay. Thank you very much.
Speaker Change: The next question is from Dan Togo Jensen from Carnegie. Please go ahead.
Speaker Change: Yes. Thank you couple of questions from my side as well.
Speaker Change: Maybe just on the warranty provisions again here.
Speaker Change: To follow up on your what you say here Henrik not much has changed so if I just apply.
Speaker Change: More than 4% once you provision you had in Q2.
Speaker Change: And take the 6% you have here in Q3.
Speaker Change: And the.
Calculate my way through different.
Speaker Change: Different stuff almost $100 million euro.
Speaker Change: Is the math wrong here and can I assume that that applies to the show to see extraordinary provision that you make.
Speaker Change: That's the first question and then maybe some wording on the 3% target you have in terms of a bunch of provisions.
Speaker Change: Is that too much too hopeful sort of saying the longer run because you cannot use something always goes wrong.
Speaker Change: The first question.
Speaker Change: I'll pick up on your last comment something always goes wrong come on and when you. When you do what you're doing here your math I can't comment on it than we are so transparent in the warranty and in this case when it sits in and around May.
Speaker Change: Maybe a few customers and a few impacts is simply not fair to ask us to comment on specific breakdowns or specific split on that we're saying there is an issue. We know what it is it's a it's a it's a very limited and restricted part of a of a batch and we are replacing it that's it.
Speaker Change: On the on the warranty over all.
Speaker Change: I think here the 3% target long term is still a thing we are doing 3% as a percentage is eight.
Speaker Change: <unk> percentage chosen and that of course is somewhat better than what we are seeing currently what I think here the leading for US is right now the Lps, it's coming down its still trailing downwards and thats. The path to have all of this because that means we are addressing the underlying quality of challenges. We have also discussed now.
Speaker Change: For a for a number of years. So the underlying trend there is positive but it will take it again. It takes some time until you hit the 3% target. That's that's again the right thing, but we are making progress.
Speaker Change: Fair enough.
Speaker Change: And then a question on service.
Speaker Change: $50 million.
Speaker Change: <unk> guidance here.
Speaker Change: How much.
Speaker Change: That is all.
Speaker Change: I can say at this lower service margin here in Q3.
Speaker Change: Okay.
Speaker Change: Right.
Speaker Change: <unk> is impacted by PUC or what is the PUC element.
And just one question and then the final question would be on.
You mentioned Henrik.
Speaker Change: I think it was you had mentioned ramp up challenges.
Speaker Change: In a.
Speaker Change: Your statement.
Speaker Change: Elaborate a bit on that and is there anything that relates to the reduced capex that you made from one fact shoot down to two 1 billion anything in the ramp up we should be aware of that is postponed some wording on that could also be nice. Thanks.
Speaker Change: So perhaps I'll take the first one on the service. So of course. So then when you look at the months when we're having this quarter and as we also say it is disappointing.
Speaker Change: I should say coming back to the mechanics, I mentioned earlier on the impact.
Speaker Change: From that is of course linked to the same way of working with cost and then a scrutiny of all of this as you also saw on that you've got explained in Q2. So of course when you look at the difference now and how we see the business compared to say a quarter ago and it is of course fast or if that's what is that due to these cost challenges that is also what is driving that.
Speaker Change: The majority of the effects that you're seeing there both in Q2, but of course also what we're looking at for the for the <unk>.
Speaker Change: Full year change that we've made and then on the ramp.
Speaker Change: Yes. Thanks.
Speaker Change: On the ramp.
Speaker Change: When you look at that.
Speaker Change: We are also saying here we've talked about the ramp we also talked about 18 months ago. When we were trying just to get a minimum activities in.
Speaker Change: We are in in Q3, where we and a number of the factories have Ida splits.
Speaker Change: The shift into two and therefore, adding additional employees and you can see it in our employee.
Speaker Change: Our employees across across west as it goes up with the with a number of our colleagues in the factories, we got a strong U S footprint that is now a split both in Israel and in blades.
Speaker Change: But when you do that you also come into exactly the same which is that you have a lot of experienced colleagues that are joined by new colleagues and not all of them fully trained and fully up to working on either blades on a cell from day. One. So so that's just one of the tedious thing and it works really.
Speaker Change: Well on paper when you have 400, and you divide them by two and at another 400 divided by two and indeed shift, but it doesn't work like that in real life, but we are progress we are super impressed with what the factory managers are doing with it but of course, there are some additional costs coming from that.
We know one thing that if you if you try to cut corners in the ramp it comes back and bite you much much more expensive when we look just a year or two ahead. So therefore, the ramp has to be done with exactly the same input on both quality and of course.
Speaker Change: Safety for our for our new colleagues coming into the factory. So that's that's one instruction everyone have to have to live with I might want just to say to everyone. Here can we just still keep the discipline around having two questions otherwise I feel a bit for everyone in the queue.
Speaker Change: Just a word on the capex the lower Capex.
Speaker Change: On the Capex node and that's just timing it is nothing to do with any of that it's typically timing when you come to this part of the year. If there are something where you plan for tools or some part of it in both on and offshore if that slips into next year they need to carry over into next year and that's what you can assume.
Speaker Change: So theres no particular things that had been stopped or extended by by what you see here.
Speaker Change: Understood. Thank you.
The next question is from John Kim from Deutsche Bank. Please go ahead.
John Kim: Hi, Good morning, I'm wondering if we could just talk a bit about the levers you're throwing in service you spoke to organizational changes and improvement in quality Lps and provisioning I'm. Just wondering where are you in that journey and how youre tracking should we be thinking multiple years multiple quarters.
Speaker Change: Any guidance there would be helpful.
Speaker Change: Also some color on existing product lines versus newer product launches would be helpful. Thanks.
Speaker Change: I don't see necessarily the organizational changes fixing the underlying.
Speaker Change: Here.
Speaker Change: John when we make organizational changes at this level, it's not like we are taking resources out of <unk>. This is a reflection of that we are changing.
Speaker Change: The changes and level and people responsible for certain parts of the business. What you would normally do when you find things that needs a turnaround or changes.
Speaker Change: And that's of course people needs to settle in and get get going with that.
Speaker Change: We don't have any new product launches outside the one you already have in the market and as I said I don't I don't think timely right now it's talking about new product launches, it's talking about ramp up of the new product launches. We have spoken about previously so so that's the that's the short status of that.
Yeah.
Speaker Change: Okay. When do you think Colorado will be at a capacity level, you're happy with or when do you look to complete hiring.
Speaker Change: With all the people that are listening into this call I will keep that for for Fovista. In reality. We are we are ramping up you can see we are getting people in Colorado on both a weekly on a monthly basis.
We are happy with the progress so far but we still are we still feel that we have more to go and you can also see it. If you. If you look down on both the order intake and also the table of deliveries you can see it is actually a pretty steep ramp.
Speaker Change: From from where we came from where we are today and that also goes for us and it goes together with our partners we work with.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you.
Speaker Change: The next question is from a cash flow from Jpmorgan. Please go ahead.
Speaker Change: Yes, hi, good morning, and thanks for your time I have a follow up on service. So in second quarter, you had 316 million catch up effect from POC.
Speaker Change: Is there any anything in third quarter that might have impacted your revenues and profits and if it is can you specify the amount that's tougher.
Speaker Change: Thank you.
Speaker Change: So I think we somehow had to say.
A different version of that question before.
Speaker Change: Okay.
Speaker Change: To that point of cost in Q3, if you look at the margin that we're experiencing in the quarter, which says we have said is low.
Speaker Change: What we would have projected.
Speaker Change: The effects from that is clearly linked to some of the mechanics that we have seen on the costs being too high.
Speaker Change: The fact that we have been continuing to scrutinize the business.
Speaker Change: I would say a good business of course, but the scrutiny continues us on par and as part of that yes. Then we have had these cost effects also in Q3.
Speaker Change: And that is why Youre then arrive at the 16%.
So.
That's I guess the short answer to that question.
Speaker Change: Thank you and my second one is on your development pipeline when I look at the.
Speaker Change: Amount, it's down roughly one gigawatt sequentially in two two gigawatt year on year.
Speaker Change: I would say you got some motors, but just wondering if you can comment on has some projects drop off from your pipeline and maybe a follow up to that.
Speaker Change: On development is that we are hitting a lot of news about carbon free electricity demand in the U S coming from data center customers and you have a very big development pipeline in North America and have you been approached by some data center players on how you can help them provide clean energy and given the.
Speaker Change: Long lead times for construction of data centers and on that topic could this be an area, where you can get some large orders down the line.
Speaker Change: I know you don't want to talk about the timing but.
Speaker Change: Maybe irrespective of timing would it be fair to assume some large orders from your American pipeline from data center customers.
Speaker Change: Thank you.
Speaker Change: Thank you Akash no I think you are both in terms of development I think youll see that across a couple of key areas for US you see it you see it being used in in.
Speaker Change: In Australia predominant needs to the energy transition, where they're replacing coal with clean elections in the U S storyline is exactly the same it has been for now decades that you build up a more independent than base load from green electrons in renewable entity.
Speaker Change: There is a new as I call it almost a new demand in town, which of course is the change of data center and also the de recognition of data centers when they change and become more related to AI that has of course, an increased demand in the U S.
Speaker Change: It is also a pretty much say.
Speaker Change: Selective or exclusive discussion with with a fewer players. So I think that is that is ongoing and of course, we participate as part of the supply chain and the supply of either projects or turbines for doing it. So we are in close with that I think it is building up and you can see also here a cast.
Speaker Change: It's across actually quite a number of very energy sources and for those who are interested in.
Speaker Change: In these things on the data center it comes with a higher size of projects. It's not the medium 150 or 200 megawatt as such it's bigger sizes. We are after when we talk about building potentially new data centers closer to the to the source of entity.
Speaker Change: Timing of it I guess I won't comment on it because when you now start combining both the demand and supply in geographical areas.
Speaker Change: Has quite a number of permitting and other parts that comes into the into the buckets of of approvals.
Speaker Change: Thank you.
The next question is from Mark.
Speaker Change: From Morgan Stanley. Please go ahead.
Speaker Change: Hi.
Mark: Good morning, just a quick question.
Mark: Sorry to go back to the service business I'm, just trying to reconcile.
Mark: On the one hand you seem.
Mark: Kind of at least my impression reasonably downbeat kind of it may take time to keep working through the service business. You are trying to get to grips with the costs there isn't that much clarity on the other hand your guidance assuming that in service. We go back to a completely normal sort of 'twenty, one 'twenty, 2% margin. So I'm just trying to kind of reconcile.
Mark: How much visibility you feel you have on the margin or do you feel like there's still a lot of moving parts and.
Mark: I'm, just trying to sort of reconcile why the kind of fairly bullish guidance on the fourth quarter with your commentary, which seems to suggest there's still a huge amount of uncertainty on that number.
Speaker Change: I don't think I don't think Ive, whether you take our tone of voice and of course, that's always the same we are doing a diligent work Max with it.
It's also as I always say in a business that does a little less than a 1 billion per quarter.
Speaker Change: That means 1% is the usual 10 million said that has a deviation to it.
Speaker Change: If you ask me today, and saying can you specifically say on a percentage for Q4. The honest answer is I don't know I know the level of it.
Speaker Change: It is not within one percentage.
Speaker Change: You can predict that.
Speaker Change: We're ahead and we are working through it and I think we know where some of the challenge we have addressed that.
Speaker Change: And we expect our team there.
Speaker Change: Our normal leadership team and Theyre also five regions that are working through it and of course, there is a there is a tight discipline around how they work through it that's the that's the one thing I would say so upbeat in one hand, yes, but also still.
Speaker Change: Still quite disappointed off that we let ourselves down into the business. So that's a reflection of how we look at it I can promise you we do everything we can to get.
On top of it across the world and that also has to be reflection, we talk you through today.
Speaker Change: Okay, and maybe just a quick follow up on sort of cost indexation and the service business I mean, obviously, there's a huge amount of cost whether it's trans transporting parts wages.
Speaker Change: Which which costs approving kind of particularly difficult to index and passed through to the customers.
Speaker Change: Kind of.
Speaker Change: What is the reason for that not being a kind of more of a mechanical process.
Speaker Change: I guess one of the things. We discussed also at Q2 was the fact that we have seen salary wages being above what we had anticipated and clearly in service salaries as an important part of the overall business model.
Speaker Change: I can say, it's a big secret that business in particular, one of the areas right now where we are seeing adverse developments compared to what we would have thought.
Speaker Change: That's one thing that I would point to clearly something medicine is driving some of these challenges.
Speaker Change: But what you index the wages off is.
Speaker Change: Is the wage inflation number in itself when you pass that on to customers or does it not work like that and thats indexed or something else.
Speaker Change: But I mean that this is in Mexico. So what we what we explained in Q2 when you have a to some extent the disconnect between some of the local indexation of either <unk> or even a wage related but with certain groups of employees suddenly being awarded differ.
Speaker Change: Wage percentages.
Speaker Change: Can go across the European continent, right now and there you will definitely see that the day lower public inflation being combined still with an expectation from certain groups of employees that have still high wage expectations that of course has to be managed and I think we have seen some of that.
Speaker Change: Coming through in the last 18 months and Thats, what we are adjusting to.
Speaker Change:
Okay understood. Thank you very much.
Speaker Change: The next question is from Ben Heelan from Bank of America. Please go ahead.
Ben Heelan: Yes, good morning, guys. Thank you.
Ben Heelan: The question just a quick follow up on Max's question, Matt around service.
Ben Heelan: You had some incremental charges if you want to call. It Q3 on top of the charges that you had in Q2 my read from that as you're going through these contracts basically one by one assessing the assumptions.
Ben Heelan: Those contracts rather than taking just a top down approach and.
Ben Heelan: Adjusting all of the contracts.
Ben Heelan: Time is that a fair way.
Ben Heelan: Thinking about and is there any way.
Speaker Change: Giving us some color about how far through the backlog of service contracts.
Ben Heelan: And those wage.
Ben Heelan: Inflation assumption adjustments that you've been making or any way to frame that kind of.
Ben Heelan: Discussion thank you.
Speaker Change: Thanks, Ben I think you can definitely assume theres no our assumptions or there's no approach to living by higher level of average is yes. It is.
Speaker Change: Into the business into the contracts, it's also pointing towards normal coloring off.
Speaker Change: The service contracts and individual wind parks and that we are addressing as.
Speaker Change: As we speak and that's that's the level of details we have to get to having said that it's not a surprise and you. All questions are right now focused on the cost fully appreciate that but at the second.
Speaker Change: The other hand, you also needs to appreciate every quarter you have a.
Speaker Change: Proportion of your service backlog that comes either from renewable repricing re discussing with customers. So there is also the discipline on the other side, which is the commercial discipline on either repricing or re costing or for that matter.
Speaker Change: Since of scope in some of the contracts and Thats down to two customers and of course, then there is the one where I think we have unfortunately done a reasonable amount of training and practicing for also the power solutions simply opening things if it doesn't perform accordingly to the plan and the agreement we had with customers.
Speaker Change: And then of course give rise of those three buckets buckets, we are addressing.
Speaker Change: As we speak but as you can imagine that is a that is a detailed work and we need to have all hands on deck on that.
Speaker Change: Alright, Thanks Henrik.
The next question is from Sean Mcloughlin from HSBC. Please go ahead.
Thank you and good morning, just coming back to warranty provisions.
Sean McLoughlin: Offshore related provisions what do they relate to is this a component is different manufacturing fault of this installation issue.
Sean McLoughlin: I'm looking at the reassurance that this is a one off or how should we think about the potential for serial issue than offshore work kind of maybe incremental analysis or scrutiny.
Sean McLoughlin: To use that word again are you taking as well.
Sean McLoughlin: Let's say in the context this provision that start the first question. Thank you.
Sean McLoughlin: Sean.
Sean McLoughlin: I will answer it by straight pointing you towards the provision in the Lps slides, which basically says it's so specific in this steady and deliberate component on two sites it cannot be more specific than that so therefore, it's as I said, if you want if you want more than than you would have to come and work.
Sean McLoughlin: With me to to know the inside of it because it is two sides led molto means it's probably either one or two customers and both customers. We are fully discussing this with but we should not do replace and repair.
Sean McLoughlin: In full public we do what we do and we do it with customers, but in this case, it's not a it's not a serial or design mess up it is part of that and we are replacing that component, but it's yeah. It's tedious it's yeah.
Sean McLoughlin: Not happy with it but we can't write it more specific than we're doing on the slide you you've just seen us do.
Speaker Change: Thank you.
The second question was around just coming back to the ramp up challenges.
I mean, what are potential implications for delayed delivery of turbines from expanded facilities, both onshore and offshore.
Speaker Change: So it all comes down to enough today on tech time on assets that comes out and of course when you. When you onboard that number of people that will be an effect that you don't run the most efficient tech time.
Speaker Change: In the first months after U S split into two new shift. So what we are just saying here that that didn't has to come through the tech time again, and that's almost like starting a bit from from from scratch again, you then start with the same shifts once again, you would need to do some training and then you need to come and see that the tech town.
Speaker Change: Time, then improves on it so it is normal manufacturing theory in its manufacturing practice.
Speaker Change: Just takes time, but but as I said.
We were there when we ramp capacity off that's a that's a hard one because you say goodbye to to that many former good colleagues. This is a positive version of the same but it's just even though it's a positive. It just comes with some additional both time and cost.
Speaker Change: Two one of course, we are seeing but as I said, rather take extra a couple of quarters to do the ramp correctly, then sitting here and apologizing for it in six or eight quarters, because that we can't do.
Very clear thank you.
Speaker Change: The next question is from Danske Bank. Please go ahead.
Speaker Change: Thank you very much.
Speaker Change: Sure.
Two questions. So the first is a bit of a follow up to the question in the beginning of the call regarding potentially higher tariffs in the U S and I don't want to speculate on what could happen, but rather if you could sort of comment to what degree you have sort of built such potential situations into your contracts and I am thinking.
Speaker Change: Specifically about all the money.
Speaker Change: The orders that you received in the U S from Q4 last year and onwards.
Speaker Change: Are they are in those contracts mechanisms that.
Speaker Change: Helps you mitigate potentially higher trade tariffs into the U S and secondly.
Speaker Change: Also on service and sorry about that but.
Speaker Change: Maybe if you could sort of try to outline.
Speaker Change: You want to get the service margin up to 25% again youll repeat at that target in connection with Q2.
Speaker Change: I'm fully understanding that it's probably not something we're going to see tomorrow, but any reflections on how you would like to get there.
Speaker Change: And also to what degree.
Speaker Change: Your current assumptions within.
Speaker Change: Percentage of completion accounting is based on getting to that 25%.
Speaker Change: Within sort of a reasonable time period. Thank you.
Speaker Change: Thanks, Kessel I will take the.
Speaker Change: Starwood with tariffs first the tariff is again as you are rightly, saying, it's it's a bit of a question Mark in the open on a day like today, because who knows but I think here in the last at least couple of years. The world has become different in terms of tariffs, it's not a surprise that <unk>.
Speaker Change: Tariffs comes these days that it hits all it eases in that sense, there's not many eases going on but when it comes it's a legislative change, which typically will be discussed.
Speaker Change: The projects you can also see even Europe has started.
Speaker Change: To do some of that so I think it's part of the new World and therefore, there is a trigger discussion with customers on it and also potentially how to mitigate it because don't forget tariff seems to be targeted at single countries of origin, rather than as a global.
Speaker Change: Our supply chain, our job together with the customer is to try to mitigate any tariff impact to the largest extent otherwise if we count it.
Speaker Change: Least here pass it as part of the solution.
That sense I think we learned a couple of lessons on that in the in the past then under service sites about getting to 25% and Theres nothing in how we work I think it's almost reminds me when I answer this a bit on how we have entered the power solutions and the business towards is 10%.
Speaker Change: When you look at service and one thing we can say today. It doesn't have the operational efficiency, we probably expected that we are of course, putting in place and addressing I think when we look at the business. It has both the scale it has the network.
Speaker Change: Most of the world to be that part of the business and as part of also this is we are pricing in commercial.
Speaker Change: On both the parts the data and others that supports 25% or more than just a little high a little sort of hits up here also when we have seen the Lps are running at 3% and above that is not supportive for the service business because you have to do quite a number of.
Warranty related activities that also hinder the efficiency of the business or so with bringing the L. P. F down below three first and then towards the 2% area that of course will also help in the service business.
Speaker Change: <unk>, 25% again, because you simply don't have the extraordinary things you impose on the service business.
Speaker Change: As such so there's a there's a number of levers, but you cannot use those leave US proper. If you don't have your own operational efficiency and that has to be the first gate we pass.
Speaker Change: Yeah.
Speaker Change: I completely understand that and value of the comments, but on the tariffs. If you could just be sort of specific do you have mechanisms in contracts that would sort of pass on dose additional cost to your customers. So I understand that together with the customer you will try to mitigate but do you.
Speaker Change: Have the closest that we'll sort of leave you neutral to it.
Speaker Change: Casper, we have clauses that takes change of legislation and other stuff, but I simply don't know in what format. It comes so therefore, I cannot answer, yes, or no 100% to simply can't because I don't know what format. It comes is it is it a tariff direct on a component is it a raw material or is it in isolation on.
Speaker Change: Something that world has become more we have clauses that forces that but it's not always a clause, which says you pay 100% of whatever.
Speaker Change: Price.
Speaker Change: Increase our tariff increase we get but it's in there because we learned from the past.
Speaker Change: Don't forget in 19, we had quite a number of increases on tariffs literally overnight and we have had that in the years before we also had it in the last four years and the current U S administration. So so we learn our way around it but but to say 100%.
Speaker Change: It's in <unk>.
Speaker Change: 100% pass through I simply can't say, yes to Caspar and yen and you wouldn't.
Speaker Change: We expect me to do because with that with that backlog I can't say that they all projects have been scrutinized.
Speaker Change: To answer that.
Speaker Change: On the question there is a there is a standard and that we live ball, but I can't say if there is somebody that is compromise that in there.
Speaker Change: Thank you very much Henrik.
Speaker Change: The next question is from Colin Modi from RBC capital markets. Please go ahead.
Colin Modi: Hi, guys. Thanks for taking my questions just a wider comment on the pricing environment is still overall supportive and still net positive also inflation I'm, referring specifically to the power solutions business and then I noticed on slide five you say about the specific components are jumping in price.
Colin Modi: If you could give any detail as to what we are or why that jumping and I presume you comment.
Colin Modi: Typically half as Vic.
Colin Modi: Coverage for because of the components is typically more careful in that indication.
Thanks.
Speaker Change: Thanks, Colin and I would suggest we take you and one more and then we finish the Q&A, but coming back to the pricing I think there's two two questions and then on the pricing on our solutions.
Colin Modi: If they are stable to positive.
Colin Modi: And I think here for us. It's also the other positive is it's in our core and key markets, where we are where we are having our order intake.
Colin Modi: That of course, we are pursuing and we don't compromise and we havent compromised the hearing of the commercial discipline, but at the same time also engaging clothing with partners to get the right solutions.
Which relates back to a cashless point, how do we link some of our orders also to the offtake much more specifically in today's world.
Colin Modi: The component side I think you were talking to some of the things which sits within the value chain because when you have had oh.
Colin Modi: So in the value chain.
Colin Modi: Some wage increases of course, the wage increases to some extent comes back in also underlying component inflation. So therefore for us it might not be us that has the wage inflation, but it might be that it's our partner in the in the components that have had a wage increase which of course gives us some barriers.
Colin Modi: <unk> in the in the components and for US. The good thing is as everyone can see from the order backlog, we are ramping up volume and we are ramping up that so of course. There is also another way of mitigating. It. So so we had our main global partners in the supply chain together.
Colin Modi: Just two weeks ago and I think also there we can now see it its coming back and people are actually pretty positive of working with us to mitigate the dose to the largest possible extent, but it is it is it is a variable degree and even in some places.
Speaker Change: Colin you will see that there are tariffs that also hit some of the components, we didn't have to find mitigation too.
Speaker Change: Great and then just to clarify.
Speaker Change: So this business again to clarify on the price cycle on the cost side.
Speaker Change: Understanding that youre still at very early stages in terms of contract renegotiations and hoping that these contracts so something to look forward to going forward.
Speaker Change: There will be as as an ongoing which is the usual things. So there's a there's a shop and attention to commercial details in in when something comes to maturity and renewable renew but then on the other hand. There is also the other thing where if you have something that simply doesn't stack up anymore than it's also.
Speaker Change: A ultimate a contract termination in training because we're.
Speaker Change: We're not going to sit here and deliver the.
Speaker Change: Services or for that matter.
Speaker Change: Bonus spare parts for free or even with the retina, but that's not the whole aspect of this.
Speaker Change: Understood. Thanks.
Speaker Change: And then with the last last question operator.
Speaker Change: Operator.
Speaker Change: Today's last question is from William Mackie from Kepler Cheuvreux. Please go ahead.
William Mackie: Thank you for squeezing me in and good morning to you all.
So I just wanted to try and see if you can frame the challenge with service would be the first question. We're looking at or you are.
Speaker Change: Managing a 154 gigawatts of power.
Speaker Change: Are you sort of prepared to say this is actually issues that are ongoing in pockets of that portfolio or is it a widespread problem and then more importantly, what actions have you been able to accelerate or reorganize to get on top of this journey.
Speaker Change: Resetting the price cost balance and how long that journey is going to take to start getting back into the legacy sort of profitability we've seen in service.
Speaker Change: Short, one we already hinted that EMEA and Americas.
Speaker Change: And that is not a general problem statement for these areas. It is central to northern part of Europe and it is in amerigas across both.
Speaker Change: U S, Canada and to some extent also in Latam, but specifically on business sides of those countries. We are addressing that as we speak and some of it is always coming down two have you been enough on your on your discipline with some of the cost and cost allocated into the business and where we are.
Speaker Change: It's not been the case that that's also where people are being reminded now on a on a frequent basis and net debt. We are addressing and I think we've gone a long way into that and we've gone a long way to have a.
Both data and but also.
Speaker Change: The problem.
Speaker Change: Organizational discussions around how to readdress that and then of course, we'll it it has to be that it is also balanced between not only the cost but it is also the commercial setting of what is the your services service contract. So I absolutely want it too.
Also here again, it's a good business, but it has pockets right now where we need to show that we can bring ourselves back into the operational control.
Speaker Change: Thank you. The second question I mean, you're sitting with a great incredible backlog of 27 Gigawatts.
Speaker Change: Looking out into next year and beyond to fulfill and deliver.
Speaker Change: And you've got an element of price carryover as well look we've seen evolve well in Q3.
Speaker Change #100: Can you share I know youll, probably reluctant but share at least some qualitative thoughts about how we should frame the prospect for volume growth in delivery given the visibility that you have on the backlog.
Speaker Change: In 2005 on 24, just broad terms.
I think on 25 will say something when we get to February.
Speaker Change #101: I think it's not a it's not a surprise that we see generally in underlying growth coming and I think this quarter is is it good hint.
Speaker Change #101: Is 19% higher than it was four quarters ago, partly by activities, but also partly by some of the pricing mechanism that is now coming coming through with a backlog of 28 billion Euro.
Speaker Change #101: Euro plus must say it finished a bit like.
Speaker Change #101: Journey and job completed in the sense of that when we out of this this year, we got some of the prior midyear 'twenty two projects out of the backlog and that will sustainable bring a different profitability off of the power solution. So that's the that's the good thing are willing.
Speaker Change #101: I won't give you need a sort of a volume or or or in EBIT.
Speaker Change #101: But we can now see with the improvements we are having quarter on quarter.
Speaker Change #101: Is that trajectory we are looking into.
Speaker Change #102: Thank you very much.
Speaker Change #102: Okay.
Speaker Change #102: Thank you everyone for doing this I'm pretty sure when we meet in London, and many of US Tomorrow morning, we will be having probably one of the first thing is look how the election panned out in terms of numbers in the U S. But besides that we look forward to meet many of you over the coming days. Thank you for your interest.
Speaker Change #102: And speak soon.
Speaker Change #102: [music].
Speaker Change #102: Okay.
Speaker Change #102: [music].
Speaker Change #102: Okay.
Speaker Change #102: Yes.
Speaker Change #102: Yes.
Speaker Change #102: Uh huh.
Speaker Change #102: [music].
Speaker Change #102: Yes.
Speaker Change #102: [music].
Speaker Change #102: Okay.
Speaker Change #102: Yes.
Speaker Change #102: [music].
Okay.
Speaker Change #102: [music].
Speaker Change #102: Good.
Speaker Change #102: Yes.
Speaker Change #102: [music].
Speaker Change #102: Okay.
Speaker Change #102: [music].
Speaker Change #102: Okay.
Speaker Change #102: [music].
Speaker Change #102: Okay.
Speaker Change #102: [music].
Okay.
Speaker Change #102: Okay.
Speaker Change #102:
Speaker Change #102: <unk>.
Yes.
Speaker Change #102: Okay.
Speaker Change #102: [music].
Speaker Change #102: Yes.
Yeah.
Speaker Change #102: [music].