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“I am very pleased with Vestas’ strong second quarter performance. Our colleagues have executed well on a high activity level, which along with a favourable mix of projects contributed to Vestas achieving extremely solid results on revenue, EBIT margin, net profit, and free cash flow and with an order intake in line with expectations. We are upgrading the full-year guidance on revenue, EBIT margin, and free cash flow, and as a result of the strong performance we also continue delivering tangible shareholder value through the 2016 share buy-back programme that we are launching now”.

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 2016 - webcast.

Summary

Compared to the second quarter of 2015, earnings and free cash flow significantly improved, mainly driven by high activity levels in the quarter and higher average project margins. Satisfactory order intake with backlog remaining at high levels. Outlook for 2016 upgraded.

In the second quarter of 2016, Vestas generated revenue of EUR 2,557m – an increase of 46 percent compared to the year-earlier period. EBIT before special items increased by EUR 254m to EUR 399m. The EBIT margin before special items was 15.6 percent compared to 8.3 percent in the second quarter of 2015 and the free cash flow amounted to EUR 330m compared to EUR 183m in the second quarter of 2015.

The intake of firm and unconditional wind turbine orders amounted to 1,790 MW in the second quarter of 2016. The value of the wind turbine order backlog amounted to EUR 8.2bn at 30 June 2016. In addition to the wind turbine order backlog, Vestas had service agreements with contractual future revenue of EUR 9.9bn at the end of June 2016. Thus, the value of the combined backlog of wind turbine orders and service agreements stood at EUR 18.1bn – an increase of EUR 1.2bn compared to the year-earlier period.

Vestas upgrades the 2016 guidance on revenue from minimum EUR 9.0bn to minimum EUR 9.5bn, EBIT margin before special items from minimum 11.0 percent to minimum 12.5 percent, and free cash flow from minimum EUR 600m to minimum EUR 800m (incl. the acquisition of Availon Holding GmbH). The upgrade is based on better than expected performance in the first half of 2016 and visibility for the remainder of the year.

Key highlights 

 

High activity levels across the board
Deliveries up by 56 percent in Q2 2016 – driven by all regions.

Strong earnings
EBIT margin before special items of 15.6 percent – up by 7.3 percentage points compared to Q2 2015.

Order backlog continues at record-high level
Combined order backlog at EUR 18.1bn.

Guidance increased
Guidance for 2016 increased on revenue, EBIT margin, and free cash flow based on better than expected H1 2016 performance and visibility for the remainder of the year.

Share buy-back programme for 2016
EUR 400m share buy-back programme launched to adjust the capital structure.

CEO's statement

“We look forward to delivering on our promises for the full year.”

Anders Runevad
Group President & CEO

A strong first half of the year

The market environment continues to be very supportive for the wind power industry with regulatory policies generally providing a favourable backdrop for industry stability. Combined with the continuously improving economics of wind energy, the future looks bright for increasing wind energy’s share of the energy mix. Today, renewable energy only accounts for a small portion of total world energy consumption but the International Energy Agency forecasted in late 2015 that growth in energy demand towards 2040 is expected to be met primarily by renewable energy sources with wind taking the largest part of the expected renewables installations in that period.

With that in mind, I’m pleased to observe that Vestas’ strategy continues to be on track. We are delivering growth in both the wind turbine and service business, and we continue to lower the cost of energy to the benefit of both our customers and Vestas, while still keeping a strong focus on controlling and improving operational excellence, for instance by managing working capital and keeping costs under control.

Activity levels were yet again high during the two first quarters of the year. Order intake has been at a very satisfying level, shipped/produced MWs is up by 42 percent and deliveries up by 29 percent. Further, we installed the multirotor prototype. All in all, it has indeed been a busy period for the 21,781 employees in the Vestas group. I wish to extend my sincere thanks and gratitude for being part of such a dedicated group of people.

As a result of the high activity levels, financial performance year-to-date also improved compared to 2015. Revenue and earnings were up significantly and our cash flow was also strong in the second quarter and we are delighted to be able to upgrade our expectations for the year on revenue, EBIT margin, and free cash flow. The strong performance and the improved expectations for the year have also allowed Vestas to launch the second share buyback programme in the history of the company.

The share buyback comes on top of a dividend payment of EUR 201m earlier this year and hence, cash returns continue to increase, displaying our strong intent to continue to provide shareholder value.

Performance in the offshore joint venture (JV) with Mitsubishi Heavy Industries is also on track. MHI Vestas Offshore Wind A/S continues to enjoy success in the marketplace and activity levels are expected to continue to increase with factories ramping up for installation of the first V164 projects. In the short-term, this will adversely impact earnings in the company as seen in the financials for the JV in the first half of the year, but in the mid to longer term, the JV is expected to become a strong and meaningful contributor to the earnings of Vestas. The first half of 2016 has played out well, and we now look forward to once again deliver on our promises as we enter into a busy second half of the year.

Finance

“Strong financial performance allows us to continue the payout of dividends and use of share buybacks while maintaining a strong balance sheet.”

Marika Fredriksson
Executive Vice President & CFO

Marika Fredriksson

Strong financial performance delivered

During the first half of 2016, Vestas had revenue of EUR 4,021m and realised an EBIT margin of 12 percent. This corresponds to a revenue increase of 23 percent and an EBIT margin increase of 73 percent compared to the first half of 2015 and illustrates that our continuous focus on performance management and operational excellence has paid off.

The increased earnings are a result of both higher delivery volumes and higher average project margins compared to the year earlier period, and we are pleased to be able to upgrade the full-year expectations. We now expect minimum revenue of EUR 9.5bn, an EBIT margin of minimum 12.5 percent. The expectations to the cash flow for the year have also been revised to minimum EUR 800m, further evidencing the strong performance of the company.

As a result of the strong financial performance, we are also seeing the balance sheet continuing to improve. Earlier this year we paid dividends of EUR 201 m as per our capital structure and dividend policy and we are now also launching a share buyback programme of EUR 400m to further adjust the balance sheet. In years without major extraordinary investments, the total return to shareholders through dividends and share buybacks may constitute the majority of the free cash flow. The share buyback programme just announced is a clear evidence of our intent to follow that ambition.

However, this does not change the fact that Vestas remains committed to maintaining a strong balance. It is clear that being in a financially sound position is a significant business enabler that allows Vestas to compete heads on with any competitor in the marketplace and the results achieved in the first half of the year underline that Vestas is well positioned to reap the benefits of the more stable market situation now observed.

Technology

“Vestas has the capability and know-how to deliver on our promise of reducing levelised cost of energy faster than the market average.”

Anders Vedel
Executive Vice President & CTO

Anders Vedel

R&D to continue reducing levelised cost of energy

With approximately 1,300 employees developing new wind turbine technologies and solutions, Vestas has the largest dedicated R&D function in the wind power industry. And it remains a key objective for all our employees to continue to work towards lower levelised cost of energy faster than market average, as outlined in Vestas’ strategy.

The commercial strengths of the two onshore platforms were once again proven in the first half of the year. With 1,425 MW of sales of the 2 MW platform, it is clear that there is a strong demand for the stable performance offered by this platform, which amongst others has proven popular on the US market. The 3 MW platform also continued its success with sales of 2,768 MW. The new variants introduced such as the 3.45 MW and 3.6 MW power modes, as well as the 136 meter rotor are popular additions to the strengths already offered on the existing 3 MW platform.

In April, Vestas announced that it is installing a concept demonstrator to test the technical feasibility of operating and controlling a multi-rotor turbine in cooperation with the Technical University of Denmark. Continuing to reduce the levelised cost of energy over the long-term will require new solutions and new ways of thinking. With this concept demonstrator, Vestas challenges the core scaling rules that wind turbines have to grow in size to increase their energy output as well as transport and installation challenges in some markets. Many new load and control features will need to be developed, tested, and proven to assess the technical and eventually commercial feasibility of the concept, and first after successful demonstration will Vestas know more about the possible use of the technologies.

In summary, by investing in development of the existing 2 and 3 MW platforms as well as new solutions such as the multi-rotor demonstrator, Vestas proves its commitment to remain the technology leader in the wind power industry, which in turn supports Vestas’ vision of being the undisputed global wind power leader.

Manufacturing

“Our results prove that it pays off to remain focused on a clear strategy with well executed operational plans.”

Jean-Marc Lechêne
Executive Vice President & COO

Jean March

Consistent operational excellence

The focus on consistently executing in accordance with the Vestas strategy and delivering operational excellence has been unchanged in the first half of 2016.

During the period, Vestas produced and shipped wind turbines with an aggregate output of 4,716 MW (1,961 wind turbines) against 3,321 MW (1,374 wind turbines) in the first half of 2015, reflecting the high activity level in the supply chain. This 42 percent increase in produced and shipped volumes has been achieved without adding new factories to the current manufacturing footprint, highlighting the flexibility and strength of the operating model that was introduced during the turnaround years.

Late in 2015, Vestas announced the plans to build a blade factory in India and the construction is progressing according to plan. This will be the first significant addition to the manufacturing footprint since 2011 and it is an example of Vestas’ ambitions to grow in its strategic focus markets. Importantly, though, Vestas has during that same period started sourcing of blades from third parties in China, Turkey, and Brazil, illustrating the willingness to also rely on external manufacturers when relevant to maintain a flexible supply chain.

The flexible, asset-light and low-cost global manufacturing footprint contributes to secure competitive quality products and lowering cost of energy from wind turbines.

Another important enabler for the continued efforts to lower cost of energy and increase margins is the continued focus on cost-out. The Accelerated Earnings PRO programme is on track with additional actions focused on the broader value chain cost-out to further support execution of the plans.

Safety is an integral part of achieving operational excellence, and over the last 10 years, Vestas has been through a remarkable journey building a strong safety culture. In 2015, Vestas changed its main safety-related key performance indicator to “Incidence of total recordable injuries per one million working hours” and in the first half of 2016, the incident rate was 7.5, below the full-year 2016 target of 8.0. YTD rate corresponds to less than one recordable incident per day (0.82) for a population of more than 22,000.

Sales

“Vestas is well positioned to capture growth opportunities across geographies and regions.”

Juan Araluce,
 Executive Vice President & CSO

Juan Araluce

Continued success in the global marketplace

Vestas’ order intake in the first half of 2016 was 4,193 MW, a decrease of 12 percent compared to the first half of 2015. It is, however, important to note that the order intake in the second quarter of 2015 was unusually high and hence, Vestas is satisfied with the first half year order intake for 2016.

The order backlog amounted to 9,361 MW at the end of June 2016 – on par with the backlog level at 30 June 2015. Europe, Middle East, and Africa (EMEA) accounted for 52 percent of the backlog, and Americas and Asia Pacific accounted for 40 and 8 percent, respectively.

The market in the USA has developed very positively in the last six months. Starting with the five year PTC extension in late 2015, which was a positive surprise, the market situation further improved as the IRS in May 2016 issued guidance on how to utilise the PTC. The IRS guidance contained several better-than-expected provisions and as a result, the US market is currently at very high activity levels. Primarily due to the unprecedented long-term duration of the PTC, this is expected to continue for the coming years.

Europe remains a stable core market for Vestas and the German market continues to display its importance as it once again took the position as the biggest market in terms of deliveries for the first half year of 2016. Vestas also entered into the largest single project in the history of the company in the first half of 2016 with the 1 GW Fosen/Hitra project in Norway.

During the first half of 2016, Vestas continued to grow its presence in emerging markets. Order intake continued in Brazil and China, and we also received orders from e.g. Uruguay, Vietnam, and Turkey.

Vestas’ ability to maintain a strong market position in countries such as the USA and Germany, its ability to sell large projects (e.g. the 1 GW project in Norway), and the continued focus on order intake in emerging markets clearly supports Vestas’ strategic ambition to grow in both mature and emerging markets and we are comfortable maintaining our ambition to grow faster than the market.

Service

“Service has become an increasingly important volume and value enabler for Vestas.”

Christian Venderby
Group Senior Vice President, Global Service

Service strategy on track

The first half of 2016 has been an eventful and exciting period for the service business and we have continued the successful journey that started when the service business was carved out as a separate unit in 2014. Amongst other things, we started to see the benefits of the two acquisitions of Availon and Upwind in the first half of the year, most notably illustrated by the capture of the 1.8 GW service agreement with American customer MidAmerican.

We delivered revenue of EUR 625m in the first half of 2016, which equals a year-on-year growth rate of 14 percent. Despite the fact that the two acquisitions have a mid-term dilutive effect on service earnings, we managed to maintain a stable EBIT margin level in the first half of the year at 18 percent and hence, it is very fair to conclude that the underlying service business continues to perform very well.

Even though the service segment increasingly serves as an important volume and value enabler, it is also evident that we need to continuously develop this area to meet an evolving competitive landscape.

Our large installed base and unmatched data processing and analytics capabilities serve as important enablers for developing and expanding the business further.

Vestas’ ambition to be the leading fleet-wide lifetime service partner for our customers remains unchanged and we see an array of opportunities to continue to develop the business within our four main business areas:

  1. Maintenance Partnering
  2. Parts and Repair
  3. Upgrades
  4. Data and Consultancy Services

While the Maintenance Partnering business still accounts for a substantial part of the volume of the service business, we are seeing that the three other areas hold plenty of opportunity as well.

Vestas service strategy is being executed according to plan and through its multitude of offerings available and increased ability to provide fleet-wide services, the business outlook is continued growth with stable margins and our strategic target to grow the business by 40 percent over the mid-term remains intact.