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2017 was a year that saw fierce competition, price pressure and the continued maturity of the wind energy sector. In this environment, Vestas’ 2017 performance was strong, as we once again led the industry on profit margins and produced solid revenue, free cash flow, record order intake, and a growing and profitable service business. We demonstrated that even in such challenging conditions, we can control costs and use our global presence and technology leadership to remain the industry leader.

Anders Runevad, Group President and CEO

Investor presentation

The Group President & CEO's and Executive Vice President & CFO's presentation of the annual report 2017 

- audiocast 
- presentation (pdf)

Summary

For full year 2017, revenue amounted to EUR 10.0bn, the EBIT margin was 12.4 percent, total net investments* were EUR 407m, and free cash flow* amounted to EUR 1,218m – in line with the expectations to revenue of EUR 9.50bn-10.25bn, an EBIT margin of 12-13 percent, total net investments* of approx. EUR 400m, and free cash flow* of EUR 1,150m-1,250m. Compared to 2016, revenue, earnings, and free cash flow decreased in 2017, but remain at a healthy level, despite highly competitive markets. Order intake in MW increased in 2017 compared to 2016, and the value of the combined order backlog continued to grow during the year. 

The wind turbine order intake increased from 10,494 MW in 2016 to 11,176 MW in 2017 and the value of the service order backlog increased by EUR 1.4bn to EUR 12.1bn.  

For 2018, Vestas expects revenue to range between EUR 10bn and 11bn, including service revenue, which is expected to grow. Vestas expects to achieve an EBIT margin of 9-11 percent, with the service EBIT margin remaining stable.  

Total investments** are expected to amount to approx. EUR 500m, and free cash flow** is expected to be minimum EUR 400m in 2018.  

Vestas is able to present updated long-term financial ambitions that reflect its projection for market conditions and the presumed result of its strategy. 

Vestas envisions market conditions which in the long term will reflect wind power having achieved merchant levels in the vast majority of markets. The wind power industry is undergoing a transition towards a more mature, unsubsidised renewable energy industry. This transition leads to a highly competitive market, and will likely drive a further consolidation in the industry. Beyond the transition, a matured market for wind energy creates opportunities for Vestas to leverage and strengthen its leadership position. Within this context, Vestas maintains its ambition to be the market leader in revenue, while the EBIT-margin ambition is changed to at least 10 percent from previously best-in-class margins. 

As a result of the strong performance during the year, the Board of Directors proposes to the Annual General Meeting that a dividend of DKK 9.23 per share, compared to DKK 9.71 last year, and equivalent to 29.9 percent of the net profit for the year, be distributed to the shareholders. A new DKK 1.5bn (approx. EUR 200m) share buy-back programme is planned to be initiated shortly and to be conducted during the period until the disclosure of the interim financial report for first quarter of 2018 on 4 May 2018.  

*) Before investments in marketable securities and short-term financial investments, and incl. proceeds of EUR 99m from sale of office building facilities.
**) Excl. the acquisition of Utopus Insights, Inc., any investments in marketable securities, and short-term financial investments.

Corporate strategy

The decarbonisation of the energy sector is underway, and estimates show that renewable energy will dominate future power generation. Wind energy is becoming a mainstream source of energy, and the long-term outlook for renewable energy creates multiple opportunities for the wind energy sector.  

Vestas remains committed to its vision to be the global leader in sustainable energy solutions. Wind power will remain the core of Vestas’ offerings, but at the same time the company envisions that a broadened focus on sustainable energy solutions will enlarge the wind turbine market, enable new revenue streams, and expand Vestas’ presence in the market. In 2017, Vestas showcased what future sustainable energy solutions would look like by combining wind, solar, and battery energy storage in the world’s first utility-scale on-grid hybrid project. 

To support its overall vision, Vestas remains dedicated to its four strategic objectives of being the global leader in the wind power plant solutions market and global leader in the wind power service market, while delivering the lowest cost of energy solutions and best-in-class global operations. 

At the same time as wind energy is becoming the lowest cost of energy solution in many markets, competition in the industry has become even more fierce, while renewable energy markets are transitioning away from tax and policy support to more competitive tender structures. In this environment, Vestas has delivered on its strategy to grow faster than the market and produce best- in-class margins, and has strengthened its global leadership in all three business areas: onshore, off- shore, and service.

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Outlook

Outlook 2018
Revenue is expected to range between EUR 10bn and 11bn including service revenue, which is expected to grow. Vestas expects to achieve an EBIT margin of 9-11 percent with the service EBIT margin remaining stable. 

Total investments* are expected to amount to approx. EUR 500m, and the free cash flow* is expected to be minimum EUR 400m in 2018.  

It should be emphasised that Vestas’ accounting policies only allow the recognition of revenue when the control has passed to the customer, either at a point in time or over time. Disruptions in production and challenges in relation to shipment of wind turbines and installation hereof, for example bad weather, lack of grid connections, and similar matters, may thus cause delays that could affect Vestas’ financial results for 2018. Further, movements in exchange rates from current levels may also impact Vestas’ financial results for 2018.

Outlook 2018   
- Revenue (bnEUR)
10-11
- EBIT margin (%)
 9-11
- Total Investments* (mEUR)
 approx. 500
- Free cash flow* (mEUR)   min. 400
*Excl. the acquisition of Utopus Insights, Inc., any investments in marketable securities, and short-term financial investments.


Updated long-term financial ambitions
Vestas envisions market conditions which in the long term will reflect wind power having achieved merchant levels in the vast majority of markets. The wind industry is undergoing a transition towards a more mature, unsubsidised renewable energy industry. This transition leads to a highly competitive market, and will likely drive a further consolidation in the industry. Beyond the transition, a matured market for wind energy creates opportunities for Vestas to leverage and strengthen its leadership position.

Within this context, Vestas is able to present updated long-term financial ambitions that reflect its projection for market conditions and the presumed result of its strategy – including initiatives that are currently being undertaken.

During the transition, revenue in the Service business is expected to grow organically by at least 10 percent annually, with stable EBIT-margins compared to 2017.

Updated long-term financial ambitions
 Revenue 
Grow faster than the market and be market leader in revenue 
 EBIT margin
 At least 10 percent
 Free cash flow
 Positive each year
 ROIC
 Double-digit over the cycle

Read more (pdf)

How Vestas performed and created value in 2017

Realised 2017 Guidance 2017 
EUR 10bn
EUR 9.5bn-10.25bn   Revenue reflecting high activity levels – albeit a 3 percent decline compared to record-high revenue in 2016
12.4%
12%-13%  EBIT margin impacted by lower volumes combined with lower average project margins in the Power solutions segment, partly offset by higher Service margins
EUR 1,218m
EUR 1,250m-1,250m  Free cash flow* generated from solid results in the underlying business; guidance updated in January 2018
EUR 407m
approx. EUR 400m  Net investments* in line with expectations driven by tangible blade investments and capitalised R&D projects, partly offset by sale of office buildings

* Before investments in marketable securities and short-term financial investments and incl. proceeds from sale of office buildings.

Activities in the Power solutions area

Order intake and financial performance
Vestas’ total installed onshore capacity increased from 79 GW in 2016 to 88 GW in 2017 – an increase of 11 percent. 

In a rapidly changing market, Vestas achieved an increase in order intake compared to 2016, with a record-high 11,176 MW. This also resulted in an order backlog of 11,492 MW. Activity levels remained at a high level with more than 11,237 MW produced and shipped and 8,779 MW delivered to the customers.  

Revenue from Power solutions decreased by 6 percent to EUR 8,431m. The EBIT margin for the segment was 13.5 percent in 2017, down 2.4 percentage points from 15.9 percent in 2016. 

Global trends in the onshore wind energy market
As a result of an improved economics of wind power, several markets adopted auctions in 2017, and the trend is expected to continue.  

The transition towards market-based solutions has increased the competitive pressure, but is a long-term positive for the industry, and the ability for wind power to compete directly with other sources of energy is what the industry has been striving for all along. 

Technology development and optimisation of the production
The ability to continue to grow faster than the market requires a constant development of more efficient wind turbines as well as a continuous optimisation of the manufacturing setup.  

During the year, several upgrades were made to Vestas’ product portfolio. New rotor sizes were introduced to both turbine platforms in the portfolio. The 3 MW platform was upgraded to 4 MW with the introduction of three new variants, including the V150-4.2 MW™, Vestas’ largest onshore wind turbine, offering an increase of up to 56 percent in annual energy production since the launch of the platform in 2010 (comparison based on V112-3.0 MW™ vs. V150-4.2 MW™).

A lean and scalable manufacturing setup remains a top priority for Vestas in order to meet the requirements of a market environment in constant change. In 2017, Vestas expanded its global footprint with the opening of the blade factory in India. Besides supporting a stronger presence in the Indian market, the factory will be utilised in the entire Asia Pacific region.

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Activities in the Service area

Order intake and financial performance
In 2017, Vestas’ service business continued to grow its activities with an increased profitability. In the year, revenue for the service segment reached EUR 1,522m with an EBIT margin of 20.1 percent.  

Vestas’ reputation as a trusted service partner for customers was confirmed by 2017’s order intake. At the end of 2017, Vestas had service agreements in the order backlog with expected contractual revenue of EUR 12.1bn, an increase of EUR 1.4bn compared to 2016. 

Innovation and new service solutions
Vestas wants to remain the global leader in the wind power service market, and one of the most important ways of continuing to hold that position is through innovations and new solutions. For example, the service contract signed with Infigen Energy in June 2017 demonstrates Vestas’ competencies in servicing the customer’s multibrand fleets. Multibrand service is a promising market segment where Vestas will place more focus in the coming years. 

An area to be further explored as well is servicing of hybrid power plants, as the Kennedy I energy power plant in Australia, for which Vestas signed a contract in October 2017.  

The quality of Vestas’ operations and maintenance was once again cemented with a Lost Production Factor below 2.0 percent measured across more than 23,100 wind turbines with performance guarantee. 

Targets for the service business
As pointed out in Vestas’ corporate strategy, service growth is key as it provides a predictable and profitable supplement to Vestas’ Power solutions business. In an increasingly competitive environment, Vestas must deliver services at the lowest cost and differentiate by delivering more value to its customers than its peers. 

Vestas’ remains committed to its financial ambition and aims to grow the service business by more than 50 percent organically towards 2020 versus 2016 revenue, while at the same time delivering best-in-class margins.

Read more (pdf)

Read more at vestas.com

Activities in the Offshore wind power area

2017 was another eventful year for MHI Vestas Offshore Wind A/S. Several milestones were reached as the company continued to secure new orders, expand its manufacturing set-up, and introduce new technology.  

The company’s financial performance was characterised by increased activity levels, progress on earnings and a strong order backlog. Short-term earnings are still to be impacted by the expected expensive ramp-up and large amortisation of the 8 MW platform.  

During the year, MHI Vestas Offshore Wind won more than 700 MW of orders in Germany and confirmed two preferred supplier agreements in the UK. The solid order intake provided conditions for the steady ramp-up of manufacturing, underlined by a new blade painting and logistics facility in the UK and recruitment of more than 400 employees in Denmark. 

In 2017, MHI Vestas Offshore Wind successfully installed the first V164-8.0 MW™ turbine, and also uprated the 8 MW wind turbine platform, enabling it to reach 9.5 MW at specific site conditions.  

The main priorities for MHI Vestas Offshore Wind in 2018 are focus on continued manufacturing ramp-up, project execution, and securing profitability.

Social and environmental performance

Vestas strives for driving social and environmental sustainability in operating the business and its impact on the communities where the company plays a role. This approach strives to achieve the company’s mission of benefitting the planet in delivering best-in-class renewable energy solutions for Vestas’ customers.  

Vestas acknowledges that producing solutions to harness wind energy makes a small negative impact on the environment. Together with its suppliers and customers, Vestas is committed to reducing this impact to the greatest extent possible, and believes that it is a corporate obligation. 

Minimising Vestas’ environmental impacts include those manifested over the operational lifetime of a wind turbine. Progress was made in 2017, with the product carbon footprint target set for 2020 – a reduction of 5 percent versus 2015 – reached three years ahead of schedule, and a target for further reduction by 2020 has been set. 

Vestas continues to increase the share of renewable energy consumption and has joined the organisation RE100, underlining the commitment to 100 percent renewable electricity. Since end of 2016, Vestas has increased the share of renewable energy of its total energy consumption from 52 to 57 percent. 

Vestas’ commitments to sustainability are also reflected in the Code of Conduct and supporting policies on human rights, health, safety and environment. In 2017, the new Code of Conduct was rolled out to employees and business partners. 

To support social sustainability, Vestas conducts Social Due Diligence to ensure social risks are mitigated and community development opportunities are identified. Such initiatives are right now ongoing in markets such as India, Mexico, and South Africa. 

In 2017, Vestas continued to reduce the number of injuries and managed to stay below the target rate. Despite a continued reduction in injuries, a Vestas employee and a contractor employee suffered fatal injuries. A number of health and safety initiatives were started in 2017, complementing existing initiatives that continue to be rolled out.