Continued leadership in a tough year
When looking back on a year just passed, it is usually wise to wait some time before making definitive statements about how that year will be remembered; about how its events will impact the years and decades ahead. Some events feel groundbreaking as they unfold, but end up having only minimal long-term impact. Other events go almost unnoticed in the moment but can change the way we live our lives in the future. However, it is already safe to say that 2020 was totally unprecedented and everything that took place during the year will be remembered in the context of the COVID-19 pandemic.
For the energy industry, 2020 was without question the year of COVID-19. The pandemic affected every part of the value chain and forced everyone to be even more resilient and innovative to ensure stable energy systems across the globe. In a year when COVID-19 dominated the agenda and challenged mobility as well as safety, the renewable energy industry’s ability to ensure continuity and stability was potentially game-changing. It may have gone a little unnoticed, but we believe the contribution made by renewables during the crisis will have huge implications for the future.
“When the stakes were highest, we showed resilience and proved we can serve as the backbone of energy systems around the world.”
Bert Nordberg Chairman of the Board of Directors
This achievement is significant because the climate crisis remains the biggest challenge the world has ever faced, and questions have been raised about whether renewables are ready to replace fossil fuels to limit CO₂ emissions. To this end, one positive to emerge from the COVID-19 pandemic was the clear evidence that renewables can provide the foundations for more resilient societies, offering clean, stable, and cost-competitive energy, as well as sustaining and creating jobs. As a testament to this, governments across the globe, including in the USA, EU, China, and Japan, developed green recovery plans or intentions to do so in 2021. In this respect, we believe the world turned a corner in 2020, paving the way for a more sustainable planet.
At Vestas, we are proud that we continued to play a key role in the fight against climate change in 2020, and underlined our leadership by achieving market-leading revenue, scale, technology, order intake, and profitability. During the year, we consolidated our leadership position and took strategic steps to expand our presence across the value chain. We also had to face unfamiliar challenges, such as living up to the quality provisions expected of Vestas. Nonetheless, every one of our employees did an extraordinary job in making sure our installed base of more than 75,000 turbines delivered sustainable energy across the globe.
Early in the year, we concluded that by leveraging our strong safety culture and establishing clear governance around our COVID-19 crisis management, we could combine safety and business continuity during the pandemic. Today, we know that the simplicity and directional nature of this decision helped create a united team at Vestas, enabling us to find solutions to the challenges and complexities we faced. For this and much more, we owe all our 29,000 colleagues a heartfelt thank you.
Expanding and delivering on our core to grasp future growth
Onshore and offshore wind and service remain the core of our business, creating opportunities for us to grow and expand our reach into new areas of renewables and the energy transition. We are therefore pleased that in 2020 we achieved several important milestones and executed on strategic initiatives that will shape Vestas’ evolution over the next decade.
"Among the most important milestones, in 2020 we managed to scale our business to meet demand, increasing revenue to EUR 14.8bn, representing 22 percent growth compared to 2019 and 46 percent compared to 2018."
Henrik Andersen Group President & CEO
We also became the first company with 100 GW of wind turbines under service, underlining the key role our Service business will play in terms of future revenue and cash flow. At the same time, we took huge steps forward in sustainability, including efforts to electrify our service vehicles and benefit cars. We also optimised our product portfolio by introducing new localised variants, installing the first EnVentusTM turbines, and made the tough decision to discontinue product development that didn’t provide sufficient returns.
In 2020, we continued to progress and execute on our strategic priorities for the mid- and long-term to remain the industry leader towards 2030. Most prominently, this process included strengthening our partnership with Mitsubishi Heavy Industries (MHI) and acquiring all shares in the joint venture, MHI Vestas Offshore Wind. Through these developments, we made an emphatic move within offshore that will help accelerate the deployment of large-scale renewables and take us closer to our vision as the global leader in sustainable energy solutions. We therefore want to thank our close partner in MHI for collaborating with us since 2014, and for sharing the vision to create a more sustainable future. We are also delighted that Kentaro Hosomi, President & CEO of MHI Energy Systems, will be nominated to joining our Board from April 2021.
In recent years, Vestas has also increased its presence in the development of renewable energy projects and built a strong global development pipeline. As a result, in 2020 we established a Development business unit which, in close collaboration with the rest of the company, will create a new revenue stream to the benefit of our global customers, local communities, and shareholders. In close alignment with our development activities, Vestas also acquired a 25 percent stake in Copenhagen Infrastructure Partners, the world’s largest dedicated fund manager in greenfield renewable energy infrastructure. Through this acquisition we aim to build another pathway to value creation, accessing the long-term returns generated by renewable energy projects. We also aim to go beyond our Development business’ current focus of co-development and early-stage investment in renewables projects.
Since 2018, we have grown revenue by 46 percent, but in that period our profitability and quality have not followed the same positive trajectory. Although COVID-19 increased executional cost, in early 2020 we made the decision to decline financial support from governments, as this allows us to manage our operations and capital structure in both the short and long term. The key to improving our profitability is through our own execution and discipline and looking ahead, we aim to increase the gross margin on our projects and reduce the costs associated with qualityissues. Indeed, any shortfall in quality can impact our profitability; for example, in the second quarter of 2020 we made the extraordinary warranty provisions of EUR 175m to repair and upgrade turbine blades. A key strategic focus area is therefore to ensure our quality across the value chain lives up to customer expectations, and is befitting of our heritage as the industry leader.
Our work to become the safest company in the energy industry continued in 2020, although COVID-19 meant the introduction of new policies and guidelines to keep our global workforce safe. Throughout the year, everyone at Vestas acted diligently to keep the COVID-impact at a minimum, underscoring how we take care of each other and continually evolve our safety culture.
Building the future Vestas
The close collaboration between our Board of Directors and Executive Management is key to ensuring a clear direction for everyone at Vestas. Through a well-established process, with a yearly strategy seminar and frequent operational follow-ups, the Board of Directors and Executive Management continuously interact to ensure alignment on major priorities.
Through this collaboration, the Board of Directors and Executive Management has set out the future direction for Vestas as outlined in our strategy. Concretely, this means that Vestas’ focus on the climate crisis translates into addressing three key challenges. These challenges, which offer huge business opportunities and which Vestas has the capabilities to solve, are:
Accelerate the deployment of renewable energy,
Drive society-wide electrification, and
Implement solutions for non-electrifiable use.
Vestas’ vision and strategy address these challenges by setting strategic priorities and defining the best executional sequence. We see this as a very directional way of enabling the whole organisation to engage in our vision: to be the global leader of sustainable energy solutions.
These priorities will require the integration of our onshore and offshore businesses into one efficient and winning operating model in 2021. Following meticulous planning since the announcement of the strengthened partnership with MHI in October 2020, we are well underway with this project, but we remain realistic about the effort required to create a unified culture focused on accelerating the energy transition. We want to build an organization that will become a leader in offshore by 2025, which means we need to catch up fast and successfully introduce our new offshore platform by this Annual Report 2020 release: the V236-15.0 MW™.
We also continue to invest in sustaining our technology leadership through modularisation, and through nurturing talent, diversity, and leadership while strengthening our customer focus. To support this development and ensure we have the right capabilities in Executive Management, we were excited to welcome Tommy Rahbek Nielsen as Chief Operating Officer and Anders Nielsen as Chief Technology Officer in May 2020. Anders Nielsen replaced Anders Vedel, who continues as Chief Scientific Advisor and whom we would like to thank for his ongoing service to wind energy and Vestas.
On the brink of a new sustainable era
2020 was a remarkable year that pushed the world into its worst crisis in more than a lifetime. At the same time, 2020 was also the year in which the world’s CO₂ emissions decreased more than ever before and where renewable energy showed it is ready to become the dominant energy source.
As such, we are on the brink of a sustainable era where we will see unprecedented change across all areas of society. Transportation, heating, and cooling will soon be electrified, and the shift to renewables will create a strong drive to integrate sustainability in everything we do. The journey ahead will not be a straight line and emissions will most likely increase again in 2021, but 2020 has shown that the solutions are ready. During the year, our supply chain and partners spent substantial time planning mutual steps to decarbonise the world’s most sustainable assets – wind turbines – even further. At the end of 2020, our 129 GW of installed wind turbines saves the world 186 million tonnes of CO₂ annually, and during the year we reduced our own carbon emissions with 33 percent, illustrating that we together with our suppliers and partners can do this with even greater momentum and speed.
However, we would not be where we are today, and Vestas would not be playing the key role it is playing in creating a sustainable planet for our children and grandchildren, were it not for our employees. During an exceptionally challenging year, everyone at Vestas demonstrated incredible passion and purpose, and made individual and team sacrifices, to ensure we kept our promises and helped to accelerate the deployment of renewables for our customers and societies. On behalf of the Board of Directors and Executive Management, we want to thank all Vestas colleagues across the globe for their efforts in 2020.
To this end and despite being outside the earnings guidance announced in February, eligible Vestas employees will receive an extraordinary reward totaling EUR 25m for ensuring business continuity and driving the global activities forward through this unprecedented year. The decision was made by the Board on recommendation from Nomination & Compensation Committee, and excludes Executive Management because we didn’t meet our performance KPIs. This special recognition reflects the tremendous contribution from team Vestas in 2020 and that COVID-19 will impact our business well into 2021.
In the future, 2020 will be remembered as the year of COVID-19, but for Vestas it was also the year where we set the direction for the next decade. Together with our 29,000 colleagues, we have an even stronger intent in 2021 to create a more sustainable planet and bring us closer to our vision of being the global leader in sustainable energy solutions.
Thank you to every external and internal stakeholder for your support and commitment in 2020.
Chairman of the Board of Directors
Group President & CEO