Vestas maintains forecasts

Net working capital stood at 15 per cent of expected annual revenue, against per cent the year before. The order backlog of firm and unconditional orders amounted to EUR 3.5bn at the end of September 2009. At 30 September 2009, Vestas had net interest-bearing debt of EUR 61m on total assets of EUR 6,133m. Of Vestas’ overall energy consumption in Q3, green energy accounted for 39 per cent, and the incidence of industrial injuries was once again improved.

A 6.0 MW offshore wind turbine is under development. For 2009, Vestas still expects an EBIT margin of 11-13 per cent and revenue of EUR 7.2bn. Net working capital is expected to amount to 10-20 per cent. In 2010, Vestas expects to achieve an EBIT margin of 10-12 per cent and revenue of EUR 7-8bn. Vestas expects to achieve an EBIT margin of 15 per cent and revenue of EUR 15bn not later than 2015 – thus making its vision “Wind, oil and gas” become a reality with wind serving as fuel on a level with oil and gas.

Vestas is the world leader with a one-fifth market share, ahead of rivals such as General Electric (GE.N) of the U.S., Gamesa (GAM.MC) and EDP Renovaveis (EDPR.LS) of Spain and Germany’s Siemens (SIEGn.DE), Nordex (NDXGk.DE) and REpower (RPWGn.DE).

Revenue in the third quarter of 2009 rose by 3 per cent relative to the year-earlier period. EBIT rose by 53 per cent. Revenue in the first nine months increased by 16 per cent, whilst EBIT rose by 39 per cent compared with the first nine months of 2008. Earnings were to a minor extent adversely impacted by the closedown of production and lay-offs on the Isle of Wight, UK, and the ongoing upgrade of Vestas’ labour force in China and the USA. However, due to the credit crisis, the upgrading in the USA is not progressing as quickly as planned. The increase in employee headcount over the past 12 months, from 19,330 to 20,256, leads to a natural increase in costs. Under the “People before megawatt” principle, Vestas hired 5,524 new employees, net, in 2008 as part of the build-up to “10 in 10” – Vestas will have the factory capacity to manufacture, ship and install 10,000 MW in 2010. The Group originally built up its production capacity and increased its staff in order to be capable of handling revenue growth in 2009 of more than 40 per cent relative to 2008. Consequently, Vestas currently has some excess capacity.

Vestas retains its earnings and revenue guidance for 2009 as initially announced on 6 November 2008 and most recently reiterated on 18 August 2009. EBIT margin is thus expected to amount to 11-13 per cent, and revenue to EUR 7.2bn. Net working capital is expected to represent 10-20 per cent of revenue by the end of 2009, as compared with the previously expected maximum of 10 per cent. Delays in the signing of contracts for certain projects and high component inventories are the main reasons for the increase in net working capital. Of the total revenue of EUR 7.2bn, service revenue is still expected to amount to EUR 550m at an EBIT margin of 15 per cent. Total investments in property, plant and equipment and intangible assets are expected to remain unchanged at EUR 800m and EUR 200m, respectively, or a total of EUR 1bn. Financial items are now expected to amount to EUR (40)m against the previous forecast of EUR (20)m. The effective tax rate is expected to remain unchanged at 28 per cent. Warranty provisions are expected to make up 3-4 per cent of revenue, reflecting strongly improved turbine reliability, enhanced uptime and performance.

In 2010, Vestas expects to achieve an EBIT margin of 10-12 per cent and revenue of EUR 7-8bn. The revenue range reflects the uncertainty caused by the credit crisis in the short term. The slowing profitability improvement is due to the fact that Vestas in the near term will have a certain excess capacity and that it will consolidate its market leadership position through the recruitment of 600 additional R&D employees. The established markets are also in 2010 expected to represent the majority of the business. In Spain, the market is, however, witnessing uncertainty about future settlement schemes, which has brought parts of the market to a halt. Revenue of EUR 8bn, which calls for substantial progress in the US market, would open up for increased staffing and higher investments to ensure Vestas’ growth after 2010 when the US market is expected to experience strong growth.

In general, Vestas expects that prices and conditions remain unchanged in 2010 relative to 2009. At the moment, the US market is characterised by excess capacity, which results in nonattractive prices and conditions on certain projects. The upgrading of the staff at the new factories in the USA will consequently take place in line with the order intake. The order intake during 2009 provided a negative surprise with especially processing times being longer than anticipated, but in the coming months, Vestas still expects to announce orders valued at several billion EUR contributing to meeting our guidance for 2010. Although Vestas’ underlying business is no longer characterised by major variations over the course of the year, most of the revenue and earnings in 2010 will once again be generated in the second half. Net working capital, which will fluctuate heavily during the year, is expected to amount to 15 per cent of annual revenue at the end of 2010. Service revenue is expected to rise to EUR 600m with an EBIT margin on a level with that achieved in 2009. Investments in property, plant and equipment and intangible assets are expected to be EUR 250m and EUR 350m, respectively. The completion in 2010 of recent years’ large investment programmes in especially China and the USA will lead to lower investments in property, plant and equipment.

Financial items are expected to amount to EUR (25)m. The effective tax rate is expected to be 28 per cent. Warranty provisions are expected to fall to 3 per cent. Renewable energy must account for 50 per cent of Vestas’ total energy consumption in 2010. At the end of 2010, Vestas expects to have approx 22,000 employees.

In the USA, the ITC Grant from the Department of Energy, in addition to the extended PTC scheme, will stimulate demand and re-establish the USA as the world’s largest single market in the short term. The revitalisation of the US market vindicates Vestas’ decision to make huge investments in production capacity in the USA, where by the end of 2010, Vestas will be able to manufacture 4,000 blades, 1,500 nacelles and 1,100 towers each year. A national renewable energy standard (RES) will ensure long-term stability for the US market, underpinning the large number of local state targets.

In China, the fixing of wind power tariffs supports the continued development of the wind turbine market, which is driven by China’s ambitious climate targets.

In India, demand will be driven by a number of new initiatives supporting investments in renewable energy. In the foreseeable future, several states are expected to implement targets for renewable energy which will secure further future growth.

In Japan, the new government’s ambition to reduce CO2 emissions by 25 per cent relative to the levels of 1990 before 2020 bodes well for wind power investments. The introduction of tariffs for renewable energy will contribute to propelling developments in the Japanese market.

The Australian market is once again witnessing a positive trend. Green energy ranks high on the political agenda in Australia, as underlined by the defined target that 20 per cent of energy consumption must be covered by renewable energy sources by 2020.

Vestas is confident that a fixed price for CO2 would promote the necessary climate investments because it would provide industrial and financial investors with a higher degree of predictability than the present quota system, which leads to large fluctuations in the price of CO2. Vestas hopes that the COP15 Climate Summit in Copenhagen in December 2009 will confirm the positive developments of the past few years as energy and the climate are pivotal in terms of economic development and security policy all over the world, with access to water playing an increasingly important role. Wind power emits no CO2 and consumes no water, and more than 80 per cent of a V90-3.0 MW turbine can be recycled.

The Vestas mission “Failure is not an option” expresses the organisation’s commitment to optimising its work processes, to safety and products and to a structured follow-up on all errors. By the end of 2008, most of Vestas and most of its suppliers were 4 Sigma, which is a prerequisite for increasing the EBIT margin in the years ahead. Vestas expects to reach 5 Sigma by the end of 2010 on its path to reaching 6 Sigma not later than in 2015. It should be emphasised that Vestas’ customers, Vestas’ earnings and its reputation continue to suffer from a few suppliers’ inadequate production and quality management. Therefore, Vestas regularly establishes relations with new suppliers with a commitment to reach 6 Sigma in a joint effort with Vestas.

Vestas currently monitors about 15,000 turbines, or 25,000 MW, round the clock, and this opens up for effective maintenance planning and higher uptime and performance for the turbines, benefiting customer earnings and Vestas’ expenditure, as Vestas’ service technicians are now able to service more than twice as many turbines as they were at the beginning of 2008. The monitoring of 68 per cent of Vestas’ total installed capacity is extended by about 10 MW each day. Improved quality and enhanced productivity reduce the costs and also lower the price of new capacity and, by extension, the price of Vestas’ growth. Failure is not an option also applies to Triple15.