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Vestas continued to execute well on our strategy in the second quarter of 2015, delivering a strong result on our key financial and operational parameters. Order intake was particularly strong, and with a combined order backlog of EUR 16.9bn we are well-positioned for the future. I am very pleased with our employees’ performance across the globe, which secures Vestas’ position as the wind industry leader. The profitable growth strategy is firmly on track as we leverage our key strengths – global reach, technology & service leadership, and scale

Anders Runevad, Group President and CEO

Webcast

The Group President & CEO's and Executive Vice President & CFO's presentation of the interim financial report - second quarter 2015 - webcast.

Summary

In the second quarter of 2015, Vestas generated revenue of EUR 1,749m – an increase of 30 percent compared to the year-earlier period. EBIT before special items increased by EUR 41m to EUR 145m. The EBIT margin before special items was 8.3 percent and the free cash flow increased by EUR 204m to EUR 183m compared to the second quarter of 2014.

The intake of firm and unconditional wind turbine orders amounted to 3,018 MW in the second quarter of 2015. The value of the wind turbine order backlog amounted to EUR 8.8bn at 30 June 2015. In addition to the wind turbine order backlog, Vestas had service agreements with contractual future revenue of EUR 8.1bn at the end of June 2015. Thus, the value of the combined backlog of wind turbine orders and service agreements stood at EUR 16.9bn – an increase of EUR 3.0bn compared to the year-earlier period.

Vestas maintains its full-year guidance of revenue of minimum EUR 7.5bn, an EBIT margin before special items of minimum 8.5 percent, total investments of approx EUR 350m, and free cash flow of minimum EUR 600m.

Key highlights 

 

Very strong order intake in the quarter
Order intake in Q2 2015 reached 3,018 MW – up 56 percent.

Largest combined order backlog ever
Wind turbine and service order backlog of EUR 16.9bn.

Return on invested capital (ROIC) remains at record high level
ROIC increased to 55 percent (TTM).

Earnings continue to improve
EBIT before special items of EUR 145m – up 39 percent – equal to a margin of 8.3 percent.

Continued strong cash flow
Free cash flow of EUR 183m strongly impacted by an increase in the cash flow from operating activities.

CEO's statement

“Vestas remains strongly positioned as the wind power industry leader. The profitable growth strategy is firmly on track.”

Anders Runevad
Group President & CEO

Profitable growth  continues

Vestas has repeatedly said that we will deliver what we promise. In the first half of 2015, we have continued to do just that.

Since the launch of our Profitable Growth for Vestas strategy in 2014, Vestas has consistently delivered strong financial results while continuing to grow the business. In the first half of 2015, Vestas has improved on all parameters, including revenue, earnings, and free cash flow – all of which stand substantially stronger now than one year ago. Activity levels are increasing while we continue to efficiently manage working capital.  Return on invested capital is high and improving. The balance sheet is solid.    

Vestas’ recent growth is driven by demand from multiple markets. Confirming our truly global reach, Vestas has won orders in 27 countries on five continents since the beginning of the year. The US market continues to drive a substantial part of this demand, though we are pleased to see that order intake in important growth markets such as Brazil and China has also increased. 

One important explanation for Vestas’ global appeal is our broad portfolio of wind turbines. Our technology strategy of building multiple variants based on the well-proven 2 MW and 3 MW platforms is paying off. Customers value Vestas’ ability to provide proven technologies across a very broad range of wind regimes and project conditions.  Combined with industry-leading service capabilities, Vestas offers our customers unparalleled opportunities to maximise their business cases.

Our offshore joint venture with Mitsubishi Heavy Industries, MHI Vestas Offshore Wind, has been operational for more than a year, and we are pleased to observe the market’s positive reception. The V164-8.0 MW’s technical development is progressing as planned, which is also reflected in the joint venture having received all but EUR 12.5m of the EUR 200m in total of milestone payments from Mitsubishi Heavy Industries.

In summary, Vestas remains strongly positioned as the wind power industry leader. The profitable growth strategy is firmly on track, as we leverage our key strengths – global reach, technology & service leadership, and scale.

Finance

“The strong half-year financial performance reflects a high activity level across all parts of the business and in all regions.”

Marika Fredriksson
Executive Vice President & CFO

Marika Fredriksson

Consistently strong financial performance continues

During the first half of 2015, Vestas experienced a high activity level across all parts of the business and in all regions of the world. The half-year financial figures reflect this high activity level, with revenue of EUR 3,268m and EBIT of EUR 224m (6.9 percent), both of which are higher than for the corresponding period last year. Return on invested capital (ROIC) stands at 55 percent, which is also a significant increase from last year. Free cash flow remains strong as well, totalling EUR 329m for the first half year.

Of significant note is that the organisation has continued to efficiently manage net working capital, notwithstanding the high activity level. At EUR (1,025)m (a negative 13.7 percent of revenue), our consistent focus on net working capital continues to pay off. Executive Management and the entire Vestas organisation will continue to prioritise this important financial parameter, which also influences cash flow. That said, it is also very satisfying to observe that free cash flow is increasingly generated by earnings.

In the first half of the year, we also strengthened our capital structure, issuing a seven-year, EUR 500m green Eurobond. Placed at attractive terms, demand for the bond placement reflects Vestas’ consistently solid financial performance and the overall strength of the company’s current position. 

In short, during the first half year, Vestas has continued to deliver consistently solid financial results across all critical parameters. We remain firmly committed to maintaining the clear focus and organisational discipline that has strengthened our position in this highly competitive marketplace.

Read more in the article "Financial performance" in the interim financial - second quarter 2015.

Technology

“By lowering the cost of energy faster than the market, we will strengthen our customers’ business case and secure Vestas’ competitiveness.”

Anders Vedel
Executive Vice President & CTO

Anders Vedel

Securing technology leadership in the long run

Simply put, lowering the cost of energy is our single most important technology objective and the driving force for our product development and technology roadmap. A primary feature of our continuously evolving technology roadmap is increasing product standardisation, which contributes to reducing the cost of energy in the design, manufacturing, and service phases of the product life cycle. Vestas’ strong order intake during the first half of the year confirms that our customers value Vestas’ product performance and reliability.

Operating in a highly dynamic market, the Vestas research and development organisation is continuously building on the company’s strong innovation heritage to ensure a steady stream of new, competitive solutions. In May 2015, for example, Vestas introduced the 3.45 MW power mode across the full 3 MW platform, which was possible in part owing to the shared nacelle technology and design. Staying focused on making our wind turbine operations more efficient allows us to increase energy output and lower the cost of energy for our customers, while at the same time adding flexibility to the product line.

Another important element of our technology and product roadmap is testing and validation. We continue to improve our testing and validation capabilities to secure the high quality and reliability of Vestas products. In addition to our own world-class test centres, this also includes utilising third party test facilities, such as is the case with our test partner LORC at Lindø in Denmark, where we recently tested a complete 3 MW turbine variant. The V164-8.0 MW offshore turbine is also being tested there.

In short, Vestas will continue investing in developing new product and service solutions to ensure we deliver industry-leading wind power plant performance for our customers. By lowering the cost of energy faster than the market, we will strengthen our customers’ business case and secure Vestas’ competitiveness.  

Manufacturing

“We continue to be busy at the factories, while maintaining full focus on improving safety, quality, and product competitiveness.”

Jean-Marc Lechêne
Executive Vice President & COO

Jean March

Steady progress towards operational excellence

In the first half of 2015, Vestas produced and shipped wind turbines corresponding to 3,321 MW in total, a 29 percent increase compared to the same period last year. The record-high order intake in recent quarters means that the factories are very busy meeting the growing customer demand and increased activity levels.

At the same time, introducing the new structural shell design at the blades factories requires new processes and production methods, the implementation of which is progressing according to plan. The structural shell design halves the investment in new production lines and creates a more flexible manufacturing setup. It is an excellent example of the successful initiatives Vestas has launched to combine increased agility with reduced costs. Owing to our continuous focus on product quality, we have also been able to consistently maintain a low Lost Production Factor, i.e. the share of wind not harvested by Vestas’ turbines, at well below 2.0 percent.

The Accelerated Earnings Pro cost-out programme continues according to plan as well. Worth noting is the sourcing team’s diligent work with our suppliers, which continues to deliver cost improvements throughout the Vestas portfolio, thus supporting increased product competitiveness.

On safety, Vestas introduced in early 2015 a new safety performance measure to further improve our already strong focus on reducing injuries. The new measure, which we call “total recordable injuries”, ensures that a broader range of unsafe situations is tracked and eventually eliminated over time.

Sales

“The strong, regionally balanced order intake highlights our position as the only truly global player in the industry.”

Juan Araluce,
 Executive Vice President & CSO

Juan Araluce

Very satisfactory order book for the half year

Vestas’ order intake increased by more than 55 percent compared to the first half year of 2014. Winning orders in 27 countries on five continents during the first half of 2015, reaffirms Vestas’ global reach and geographic diversification. The increase in wind turbine orders is seen across all regions, with Latin America, the USA, Poland, and, China being significant contributors. Building long-term partnerships with global energy market players has been a focus area for Vestas, so it is also worth highlighting that large, key account customers have placed many of these new orders.

A large part of the increase in order intake stems from US projects, which in the first two quarters resulted in orders of more than 1.6 GW. This compares to 1.1 GW in the first half of 2014. Vestas continues to advocate for an extension to the American Production Tax Credit (PTC), though we are well prepared to adapt to a variety of scenarios.

While US projects have played an important role in our overall order intake, the progress we are making in other strategically important markets, such as China and Brazil, is especially positive. With first half year orders totalling 256 MW in China and 286 MW in Brazil, Vestas is on track toward achieving our profitable growth objectives in these fast-growing markets.

Read more in the article "Market development" in the interim financial report - second quarter 2015.

Service

“The market is responding positively as we increasingly develop flexible service solutions to meet the specific needs of a diversified customer base.”

Christian Venderby
Group Senior Vice President, Global Service

Steady  expansion of service business

The Vestas service business continues to perform well. In the first half of 2015, onshore service revenue increased by approx 17 percent compared to the same period last year, while the service order backlog grew by EUR 0.6bn in the second quarter, and now totals EUR 8.1bn.

Almost all new wind turbine orders include a service contract, and the average duration of the total backlog is now about eight years. We consider this a healthy time period, though we naturally continue working to extend the average.

Most new service contracts are signed for the full-scope Active Output Management 4000 or 5000 service packages, which give Vestas an active involvement as guarantor for the performance. Such service solutions open up for close partnerships with the customers as well as adding to the base of installed wind turbines from which Vestas collects data and builds on existing knowledge. Importantly, the market is also responding positively as we increasingly develop flexible service solutions to meet the specific needs of a diversified customer base.

Aftermarket upgrades on the base of installed wind turbines, now amounting to 69 GW, are becoming another focal point. To increase the Annual Energy Production, we are introducing new hardware as well as software upgrades. The software-driven enhancements – such as some of the features under the successful PowerPlus™ suite of solutions – allow customers to upgrade legacy wind turbines with new design features, which has strengthened our competitive positioning.