Assumptions and risks
A number of banks are venturing into project funding, which will henceforth create a more robust financial infrastructure for the industry and its customers. As the banks are now much more critical than they were before the credit crisis, processing times and documentation requirements have gone up. This is clearly to the benefit of the financially strong blue-chip providers. A setback in the credit market would adversely affect the wind turbine market. Similarly, low prices of fossil fuels could postpone demand, and lower energy consumption caused by economic cycles could also affect demand for wind power plants.Prices of a number of components are rising. As a general rule, Vestas’ contracts take such price increases into account so that the final price of the projects will reflect developments in input prices. This means that Vestas’ margin is relatively robust towards fluctuating input prices of contracts signed. Consequently, rising raw materials prices at first represent a larger challenge when signing new contracts. Large-scale investments throughout the supply chain have eliminated most of the immediate risk of bottlenecks and, by extension, Vestas’ need for buffer stocks, which will be reduced in the course of 2011. The number of providers and suppliers is growing, leading to intensified competition throughout the value chain.
Other than the aforementioned, the most important risk factors include additional warranty provisions due to potential quality issues, transport costs, disruptions in production and in relation to wind turbine installation as well as potential patent disputes. The regionalisation of Vestas' production platform has reduced its exchange rate risk, but the risk has not been eliminated.
Vestas operates with three types of contracts: supply-only, supply-and-installation and turnkey. Revenue from supply-only and supply-and-installation orders is not recognised until the projects have been finally handed over to the customer. Revenue from turnkey orders, which accounted for 6 per cent of revenue in 2010 exclusive of service, is recognised as earned. There are no differences between the contract types in terms of the payment profile.
Along with certain of its directors and officers, Vestas has been named as a defendant in a class action lawsuit filed in the United States Federal District Court for the District of Colorado, USA, ref. company announcement No. 8/2011 of 21 March 2011.
