The future
A more robust and leaner Vestas
In 2006, Vestas began to build an international reach in its organisation and production. The objective has been to be able to manufacture regionally at local costs, to reduce transport costs both financially and in terms of environmental footprint, to improve relations with politicians and not least local, regional and international customers and in that way shorten delivery times. Finally, investments in China and the USA have made Vestas more robust to exchange rate fluctuations. Previously, the bulk of Vestas' production cost base was in Northern Europe. To illustrate this, 16 per cent of Vestas' employees worked in non-European countries at the end of 2006. Today, the figure is 37 per cent.
In the years ahead, Vestas must also internationalise its administrative cost base to better reflect local and regional selling prices and cost levels. The change and adjustment of the organisation, which will be initiated on 8 February 2012, will reduce the fixed cost base by at least EUR 150m with full effect as from the end of 2012. These efforts, which will lead to redundancies, will contribute to compensating for the effect of the increasing prices of a number of components. If the American PTC scheme will not be prolonged, further adjustments will be made in the American organisation at the end of i 2012. Even though the Triple15 ambition has been abandoned, Vestas still believes that in the long term, the wind market will show double digit growth, and that wind power will account for a considerable proportion of the extension of the world’s total power capacity.
Until now, Vestas has handled most of its production in-house to ensure the necessary quality. This applies to components such as electronic control systems, blades, hubs for towers and the load-bearing nacelle constructions. Together with Vestas, many suppliers have grown with the challenge and are currently able to deliver the required quality on time. This allows Vestas to increasingly manufacture to order and thereby reduce its inventories, while leaving a greater share of wind turbine production in the hands of selected local partners. To exemplify this approach, Vestas aims to manufacture turbines for the Brazilian market primarily with local collaboration partners. Going forward, Vestas will therefore have a relatively lower need for investment, resulting in a leaner Vestas with relatively fewer employees who increasingly control and coordinate supplier relationships. Like Vestas, the suppliers must consistently seek to improve work safety and production sustainability. Vestas has significantly improved its safety level since 2006, and it increasingly uses green electricity and works to reduce production waste.
Concurrently with the production capacity expansion, Vestas has strengthened its research, development and quality assurance activities and currently has a little below 2,000 employees in R&D, which is close to a four-fold increase relative to the end of 2006.
The investments have proved their worth; the wind power plants have become far more reliable and efficient and now harvest nearly 98 per cent of the winds that pass a turbine. This provides significant value to Vestas' customers and, not least, to Vestas itself owing to lower service costs and warranty provisions. In 2012, the wind power plants are set to harvest more than 98 per cent of the potential winds. The goal is to keep warranty provisions below 3 per cent of revenue.
Improved quality, strengthened R&D efforts and increased regionalisation
| 9 months*) |
Full year 2010 |
Full year 2009 |
Full year 2008 |
Full year 2007 |
Full year 2006 |
|
| Order intake (bnEUR) | 4.0 | 8.6 | 3.2 | 6.4 | 5.5 | 4.9 |
| Order intake (MW) | 4,211 | 8,673 | 3,072 | 6,019 | 5,613 | 5,559 |
| Revenue (mEUR) - of which service |
3,798 502 |
6,920 623 |
5,079 504 |
5,904 396 |
3,828 298 |
4,179 214 |
| Gross margin (%) | 12.0 | 17.0 | 16.5 | 19.1 | 15.3 | 11.1 |
| Warranty provisions (%) | 2.4 | 2.8 | 5.8 | 4.5 | 6.6 | 3.6 |
| EBIT margin before one-off costs (%) | (2.2) | 6.8 | 4.9 | 10.4 | 5.3 | 4.9 |
| Free cash flow | (218) | (733) | (842) | (403) | 384 | 454 |
| Return on invested capital before one-off costs**) (%) | 0.9 | 10.8 | 9.5 | 43.4 | 21.3 | 14.4 |
| Investments in property, plant and equipment (mEUR) | 268 | 458 | 606 | 509 | 265 | 153 |
| Number of employees, end of period - of which outside Europe |
22,362 8,352 |
23,252 8,127 |
20,730 6,569 |
20,829 5,320 |
15,305 3,232 |
12,309 2,025 |
| Number of R&D employees, end of period | 1,979 | 2,277 | 1,490 | 1,345 | 650 | 519 |
*) Neither audited nor revied.
**) Calculated over a 12-month period.
Together with intensified customer dialogue, these investments have sharply improved customer satisfaction levels, and combined with granted patents it is paramount for Vestas to retain and expand its position as the leading player and pure-play spokesperson for WindMadeTM and wind power. However, this requires a consistently more effective and customer-oriented Vestas, and a number of organisational changes will therefore be initiated in connection with the presentation of the 2011 annual report in February 2012. The adjustments of Vestas' fixed costs will also reflect the weak macro-economic outlook especially for the OECD area, which accounts for more than half of Vestas' revenue. Vestas is at the same time preparing for the fact that the PTC scheme in the USA may not be extended after 2012.
Service is the Vestas business area currently experiencing the strongest growth: Vestas offers an increasingly broad product range covering everything from simple on-call duty to a guaranteed minimum exploitation of the wind – if efficiency exceeds the agreed level, the customer and Vestas share the profit. Conversely, Vestas must compensate the customer if a given level is not achieved. A high level of installed capacity and carefully planned service visits are key prerequisites for generating profit on such a business model. Consequently, close monitoring of more than 21,500 turbines, or 80 per cent of Vestas' installed capacity totalling 47,375 MW, is the cornerstone of Vestas' growth strategy. As part of the strategy, new customer groups such as pension funds and businesses will henceforth complement sales to utilities, which account for the bulk of Vestas' revenue. On a limited scale, Vestas will henceforth offer its customers servicing and maintenance of non-Vestas turbines.
The service business requires only a small amount of capital but in-depth knowledge of which turbines to install and where to place each turbine. Furthermore, parts of the repair infrastructure and spare parts distribution can be outsourced, and wind power plants already installed can regularly be upgraded with new software packages. In the future, the service business is expected to grow faster than the sale of wind power plants
