Market Confident In Vestas Despite Only Steady Second Quarter

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Danish wind energy giant Vestas published its second-quarter earnings last week, revealing steady revenue and a “solid” order intake for the quarter combining to increase the company’s order backlog to a high level.

The second quarter for Vestas was a picture of mixed results finishing, as it did, with a flurry of activity including the announcement of nine separate wind turbine orders worth 803 megawatts (MW) and a renewed services agreement for 1,150 MW across the United States. The last month of the quarter also heralded a restructuring to the company’s China sales business in order to adapt to the country’s new wind policies.

As such, Vestas finished the second-quarter with a “solid order intake” and an “order backlog at high level.” While revenue was on par with the same quarter a year earlier, the company’s earnings and free cash flow decreased and its 2018 guidance narrowed. However, as compared to the first quarter of 2018, the company’s second quarter was a much-needed shot in the arm.

Specifically, Vestas generated revenue of €2,260 million, an increase of 2% compared to the same quarter a year earlier and a 33% increase on 2018’s first quarter. Earnings (EBIT) decreased for the quarter, down 7% to €259 million from the second quarter a year earlier, but up 105% on the year’s first quarter.

Vestas’ firm and unconditional wind turbine orders amounted to 3,807 MW for the quarter with a combined backlog value of €10.2 billion as of the 30th of June. Vestas also boasts services agreements worth €12.8 billion, making a combined backlog of wind turbine orders and services agreements of €23 billion.

“In the first half of 2018, the wind industry strengthened its position as the cheapest form of energy generation in many markets, which drove strong global demand,” said Anders Runevad, Vestas Group President & CEO. “This development saw Vestas’ second-quarter order intake increase 43% year over year, contributing to the continued growth of our order backlog to an all-time high. In the second quarter, price per MW stabilised around the levels in recent quarters, but continues to impact short-term results.

Anders Runevad, Vestas Group President & CEO

“External factors such as existing and potential tariffs, however, are creating some uncertainty in the industry,” Runevad continued. “In this environment, I am very pleased that Vestas continues to deliver best-in-class margins and achieved a 17 percent organic growth in service, while free cash flow is negative because activity levels in 2018 will be back-end loaded. With long-term perspectives for renewable energy getting stronger, Vestas continues to effectively manage its costs and invest in the solutions that together will help us lead the global energy transition.”

Looking forward, Vestas was forced to narrow its guidance on revenue to be in the range of €10 and €10.5 billion (compared to a previously guided range of between €10 to €11 billion, and EBIT margin was narrowed to between 9.5% to 10.5% (compared to a range of between 9% and 11%). Vestas still expects total investments for the year to amount to approximately €600 million and free cash flow for the year is expected to be at a minimum of €400 million.

The mixture of “good news and bad news, depending on how you look at it” saw the stock market react in type, spiking strongly before falling back only to steadily increase to sit well above previous trading as of the time of writing.

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Joshua S Hill

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