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“In a changing market, Vestas delivered another solid quarter with healthy earnings and maintained our leadership position. Our second quarter results showed improved order intake across all regions, increased order backlog, strong performance in service, and half-year revenue on par with 2016. Looking ahead, we need to continue to put all of our focus on effectively executing on our strategy."

Anders Runevad, Group President and CEO

Interim financial report - Q2 2017 (pdf)

Interim financial report - second quarter 2017

Highlights for the Group 
Financial performance
Market development 
Strategy and financial and Capital structure targets 
Social and environmental performance
Outlook 2017
Consolidated financial statements

Webcast

The Group President & CEO's and Executive Vice President & CFO's presentation of the interim financial report - second quarter 2017 - webcast.

Summary

Revenue, earnings, and free cash flow decreased compared to last year’s very strong second quarter of 2016. Solid order intake and combined order backlog at high level. Guidance for 2017 maintained.

In the second quarter of 2017, Vestas generated revenue of EUR 2,206m – a decrease of 14 percent compared to the year-earlier period. EBIT decreased by EUR 120m to EUR 279m. The EBIT margin was 12.6 percent compared to 15.6 percent in the second quarter of 2016 and free cash flow* amounted to EUR (158)m compared to EUR 330m in the second quarter of 2016. The intake of firm and unconditional wind turbine orders amounted to 2,667 MW in the second quarter of 2017. The value of the wind turbine order backlog amounted to EUR 9.1bn at 30 June 2017. In addition to the wind turbine order backlog, Vestas had service agreements with an expected contractual future revenue of EUR 11.1bn at the end of June 2017. Thus, the value of the combined backlog of wind turbine orders and service agreements stood at EUR 20.2bn – an increase of EUR 2.1bn compared to the year-earlier period. Vestas maintains its 2017 guidance on revenue of EUR 9.25bn-10.25bn, EBIT margin before special items of 12-14 percent, total investments* of approximately EUR 350m, and free cash flow* of minimum EUR 700m.

 

*) Before investments in marketable securities and short-term financial investments, and incl. proceeds of EUR 99m from sale of office building facilities.

Key highlights 

 

Increased order intake
Order intake in the quarter reached 2,667 MW..

Revenue of EUR 2,206m in Q2
Revenue in H1 2017 of EUR 4,091m – on par with H1 2016..

Solid earnings
Q2 2017 EBIT margin at 12.6 percent.

Strong service performance
Revenue increased 14 percent with an EBIT margin of 19.4 percent.

Share buy-back programme
EUR 600m share buy-back programme launched to adjust the capital structure.

CEO's statement

“Our continued high activity levels and performance give me comfort that we are pursuing the right strategy and executing well on it. We remain the leading player in the marketplace.”

Anders Runevad
Group President & CEO

Strategy on track

Vestas is a leading player in the development of sustainable energy solutions, and with a broad support for reducing CO2 emissions, the market environment continues to provide a favourable backdrop for the wind power industry.

With an expected growth in the demand for electricity of almost 70 percent from 2015 to 2040 combined with the continuously improving economics of wind, the future looks bright for wind energy.

The trend towards auction systems is now present in most regions, recently exemplified by the auctions in Spain and Germany. The transition enhances the competitive environment but at the same time increases the appetite for wind power. Scale and full understanding of every element in the value chain is therefore more important than ever, and Vestas finds itself well-positioned to reap the benefits of this development.

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 doing so, Vestas still keeps 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 first two quarters of the year. Order intake was at a satisfying level, and the number of produced and shipped wind turbines increased by 16 percent. The service order backlog increased by 4 percent during the first half of 2017, underlining our strong offerings within the area. The worldwide fleet of serviced wind turbines now stands at 71 GW. Further, we introduced new variants of the 2 MW platform, while upgrading the 3 MW platform to a 4 MW platform and at the same adding an even larger rotor.

As a result of the high activity levels and a strong financial performance, we have decided to initiate a share buy-back programme of up to EUR 600m. Coming on top of a EUR 95m share buy-back programme earlier this year, and combined with EUR 278m returned as dividends, Vestas continues to create value for its shareholders.

Performance in the offshore joint venture with Mitsubishi Heavy Industries is also on track and first half year 2017 was a busy period for MHI Vestas Offshore Wind A/S. The largest order ever of 450 MW for the Borkum Riffgrund II project was received and contributed to a total 2.5 GW of firm orders since the formation of the joint venture. The most powerful wind turbine in the market, the V164-8.0 MW, was in January 2017 uprated to 9.0 MW and again to 9.5 MW in June 2017. It should, however, be noted that the joint venture is still ramping up for installation of the V164 projects, and in the short-term this will adversely impact earnings in the company, but in the mid to longer term, MHI Vestas Offshore Wind is expected to become a strong and meaningful contributor to the earnings of Vestas.

This first half of 2017 was indeed a busy period for Vestas and I want to thank all employees of the Vestas Group for their dedicated work. I look forward to continuing our efforts in the second part of the year.

Finance

“While maintaining a solid balance sheet, we continued to execute on our strategy, delivering good financial results and once again paying dividends and launching a share buy-back programme.”

Marika Fredriksson
Executive Vice President & CFO

Marika Fredriksson

Solid balance sheet and strong financial performance

During the first half of 2017, Vestas had revenue of EUR 4,091m and realised an EBIT margin of 12 percent. This corresponds to a revenue increase of 0.2 percent and an unchanged EBIT margin compared to the first half of 2016.

It is, however, important to notice that the second quarter of 2016 was an extraordinary quarter in terms of activity levels and profitability, and the financial results of the first half year 2017 illustrate that the continuous focus on performance management and operational excellence pays off. As a result of the strong financial performance, the balance sheet remains strong as well and is actively managed:

  • Earlier this year, Vestas paid dividends of EUR 278m as per our dividend policy.
  • Following the sale of two office buildings in Denmark, a share buy-back programme of EUR 95m was executed.

  • Vestas is now launching another share buy-back programme of up to EUR 600m to further adjust the capital structure.

  • In June, Vestas signed an extended and amended EUR 1.15bn revolving credit facility, extending the maturity of Vestas’ debt profile at favourable pricing and terms.

The priorities for capital allocations are intact and Vestas remains committed to maintaining a strong capital structure. It is clear that being in a financially sound position is a 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 underlines that Vestas is in a strong position to utilise the opportunities seen in the market.

 

 

Technology

“Vestas is continuously demonstrating technology leadership by bringing new products to the market and reducing the levelised cost of energy.”

Anders Vedel
Executive Vice President & CTO

Anders Vedel

Delivering lowest cost of energy solutions to the market

Lowering the cost of energy remains our single most important technology objective and is the driving force for Vestas’ product development and technology roadmap. With the largest R&D investments in the industry, Vestas’ ambition to reduce levelised cost of energy faster than market average remains unchanged.

The commercial strength of the two onshore platforms was once again proven in the first half of the year. With 2,282 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 and Chinese markets. The 3 MW platform also continued its success with sales of 2,434 MW, especially within the core markets of Europe and Latin America. The power mode options of 2.2 MW and 3.6 MW are popular additions to existing platforms, reflected by the solid order intake for these.

In June, Vestas upgraded the 3 MW platform to a 4 MW platform. Three new variants were introduced to the market with a nominal rating of 4.0 MW and 4.2 MW in power mode. Vestas now has eight product variants under the 4 MW platform range with a nominal rating from 3.45 MW to 4.0 MW and up to 4.2 MW in power mode. With this, the 4 MW platform portfolio delivers the most comprehensive span of products in the market, ranging from typhoon to ultra-low wind conditions. The 2 MW product portfolio was also expanded with the introduction of two new rotor sizes (V116 and V120) which unlocks new opportunities for medium to ultra-low wind sites.

Vestas is further strengthening the research and development capabilities with a new engineering design centre in Portugal. The new centre expands Vestas’ industry-leading R&D organisation which includes sites in the UK, Norway, Germany, India, and Denmark.

In summary, by investing in development of the existing 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 leader in sustainable energy solutions.

Manufacturing

“A busy first half year of 2017 with MW produced and shipped up by 16 percent, while continuing the strong focus on safety and optimising our cost-effective global manufacturing footprint.”

Jean-Marc Lechêne
Executive Vice President & COO

Jean March

Continuing operational excellence

Delivering operational excellence continues to be a key focus in Vestas. In the first half of 2017, Vestas produced and shipped wind turbines with an aggregate output of 5,466 MW (2,075 wind turbines) against 4,716 MW (1,961 wind turbines) in the first half of 2016, reflecting the high activity level in the supply chain.

Safety continues to be an integral part of achieving operational excellence, and over the last 10 years, Vestas has been 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 2017, the incident rate was 5.5, below the full-year 2017 target of 6.0. The year-to-date rate corresponds to less than one recordable incident per day (0.69) for a group of employees of more than 22,000.

In early 2017, Vestas expanded its global manufacturing footprint with the opening of a blade factory in India, which was the first significant addition to the production setup since 2011. The establishment of the factory reflects Vestas’ long-term commitment to the Indian market, and highlights the ambition to grow in strategic focus markets. While keeping the development of core components in-house, it is also important to highlight the willingness to rely on external manufacturers when relevant to maintain a flexible supply chain. In April, Vestas entered an agreement with TPI Composites to start sourcing of blades in Mexico, adding to the already established third-party sourcing in China, Turkey, and Brazil.

The flexible, asset-light and low-cost global manufacturing footprint secures high quality products as well as reducing the cost of energy for Vestas’ customers.

Another important enabler for the continued efforts to lower cost of energy 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.

Sales

“Vestas is well-positioned to capture the benefits of a changing market environment.”

Juan Araluce,
 Executive Vice President & CSO

Juan Araluce

Changing but still  supportive market dynamics in first half year 2017

Vestas’ order intake in the first half of 2017 was 4,716 MW, an increase of 12 percent compared to the first half of 2016. The wind turbine order backlog amounted to 10.7 GW at the end of June 2017, an increase of 1.3 GW compared to the backlog level at 30 June 2016. Europe, Middle East, and Africa (EMEA) accounted for 49 percent of the backlog, and Americas and Asia Pacific accounted for 37 and 14 percent, respectively. 

After a busy year-end of 2016 in the USA with customers qualifying their projects for the maximum Production Tax Credit (PTC), 2017 is the first year in a four-year construction window where these projects can materialise.

With the long-term expected certainty of the PTC structure towards 2023, alongside with the competitiveness of wind power, Vestas continues to expect a strong demand in the USA, and is pleased to have secured orders of more than 1,500 MW in the USA so far in 2017.

The German market continues to display its importance as it once again took the position as the biggest European market in terms of deliveries and order intake for the first half year of 2017. 

The market dynamics in Europe are however to some extent changing as auctions are now present in many countries. Spain and Germany both held auctions in May while several other European markets are preparing auctions and tenders in second half year of 2017. 

During the first half of 2017, Vestas continued to grow its presence in markets outside the USA and Europe. Vestas experienced a good order momentum in China despite expected overall decline in volumes in the market for 2017, showcasing that the local market strategy is working.  

Argentina has also been a strong market in the first half of 2017 with an announced order intake of 470 MW.

 

Service

“We continue to strengthen and broaden our service offerings. Supported by the successful integration of our acquisitions, we continue to deliver high value for our customers and Vestas.”

Christian Venderby
Group Senior Vice President, Global Service

The importance of the service business continues to increase

The service market continues to grow and the first half of 2017 was an eventful period for Vestas. The integration of the two independent service providers Availon and Upwind Solutions is progressing according to plan, and the strategic focus on multibrand services was emphasised by the 557 MW fleet-wide service deal from Infigen in Australia combining Vestas and Suzlon wind turbines. This deal demonstrated that we are comfortable with offering full-scope service agreements on non-Vestas turbines. 

The service business generated revenue of EUR 740m in the first half of 2017, which equals a year-on-year growth rate of 18 percent. Furthermore, we had service agreements with an expected contractual future revenue of EUR 11.1bn. Importantly, the underlying service business continues to perform well and delivered an EBIT margin of 19.3 percent in the first half of 2017.  

Even though the service segment serves as an increasingly important volume and value enabler, it is also evident that Vestas needs to continue to develop this area to meet an evolving competitive landscape. Our large installed base and unmatched data processing and analytics capabilities serve as important drivers 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:  

  • Maintenance partnering
  • Parts & repair
  • Fleet optimisation
  • Data & consultancy services  

While the Maintenance partnering business still accounts for a substantial part of the volume of the service business, Vestas is seeing that the three other areas hold plenty of opportunities as well.