Danish wind energy giant Vestas announced its first-quarter earnings last week, with slight declines across the board due to strong headwinds and comparisons to an unusually strong first quarter in 2017.
The global wind energy market is justifiably strong, but recently it has also become exceedingly and fiercely competitive, affecting company profitability across the sector. Governments around the world are beginning to cut back on subsidies, relying instead on competitive tenders and forcing cost-saving measures throughout the supply line. Companies are seeking new markets in which to expand and secure a foothold to solidify their position moving forward. The offshore wind industry is also pulling a lot of attention for companies that are involved in both, and governmental regulations in countries like the UK are forcing developers to look offshore rather than onshore.
To make matters worse — at least for wind turbine company Vestas — strong currency headwinds for the company, combined with what was a spectacularly impressive first quarter of 2017, meaning that to match up, Vestas would have had to benefit from similarly spectacular results in its first quarter of 2018.
This, it was not able to do, and as a result the company reported revenue, earnings, and free cash flow all decreased in the first quarter of 2018 compared to the same quarter a year earlier.
“The wind energy industry continues to drive down electricity prices and further enable integration of sustainable energy, creating a larger long-term market for wind power solutions,” explained Group President & CEO Anders Runevad. “In the short term, however, this has entailed fierce competition that has impacted profitability in the sector, which together with currency headwinds for Vestas resulted in first quarter 2018 results that are lower than last year’s historically strong first quarter.”
As such, revenue for the first quarter amounted to €1,694 million, down 10% on the first quarter of 2017. Earnings (EBIT) for the first quarter decreased by 40%, down €85 million to sit at €126 million for the first quarter — well down on analyst expectations of €137 million. EBIT margin was 7.4% compared to 11.2%, while free cash flow amounted to €-587 million, compared to €8 million a year earlier.
However, it wasn’t all bad news.
“At the end of the first quarter of 2018, Vestas had an all-time high order backlog, solid revenue, and a best-in-class EBIT margin, while our service revenue grew organically by 5 percent and continued to deliver solid margins,” Runevad continued. “Vestas continues to execute on its strategy, manage its cost base and use its leading position to invest in technology and innovations that over the long term will enable Vestas to increase wind energy’s prominence in the global energy mix.”
Vestas took in orders worth 1,629 megawatt (MW) for the first quarter and pushed the value of its order backlog to €9.3 billion. Vestas also has service agreements worth €12.3 billion, pushing its total order backlog to an all-time high of €21.6 billion. As such, and despite a shaky first quarter, Vestas was able to maintain its 2018 guidance.
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