Danish wind energy manufacturing giant Vestas Wind Systems A/S published its first quarter earnings earlier this month, revealing slumping profit and minimal revenue growth despite a record first-quarter order intake and an all-time high order backlog.
Vestas reported revenue of €1,730 for the first quarter of 2019, up only slightly on the same quarter a year earlier and an EBIT of €43 million with an EBIT margin of 2.5%, impacted by competitive markets, tariffs, and back-end loaded activity level. A record 3 gigawatts (GW) of orders were taken during the first quarter, leading to a combined backlog of over €28 billion, up an impressive 31% year-over-year, including service agreements worth €15 at the end of the quarter.
However, the real story was the company’s hit to profitability, reporting profit for the period (after tax) of only €25 million, down substantially on the €102 million recorded in the first quarter of 2018, a 75% decrease.
“The strong global demand for wind energy continued in the first quarter of 2019 with Vestas growing its order intake with 84% to 3 GW and reaching an all-time high order backlog of EUR 28 billion,” said outgoing Group President & CEO Anders Runevad.
“While underlying prices remain fairly stable and our Service business continues to grow in both revenue and profit, our results were as expected negatively impacted by orders received during the price decline in 2017. Furthermore, external factors such as tariffs and raw material prices increased cost as projected in the quarter. With activity levels planned to be significantly higher in the second half of 2019, we leverage our market-leading position to ramp up for executing an extraordinarily busy 2019, while introducing new solutions that accelerate the energy transition.” – Runevad
“Vestas’ Ebit-margin contraction may be temporary, in our view, as lower-margin projects are exhausted from the turbine-order backlog, with pricing stable and as year-end deliveries accelerate,” said James Evans of Bloomberg Intelligence, who provided his analysis upon request.
“A cost escalation resulted from high R&D expenses as Vestas launched its Enventus turbine range that should enable product competitiveness over the next five years. Reported Ebit was lower than consensus, yet several positive trends were apparent in results, including record order intake for a 1Q period and the strong service contribution with a 26.4% Ebit margin.
“A focus on curbing raw-material costs and restraining SG&A expenses should be a company priority, and we believe management’s unchanged guidance could be justified by the strong order book and expected delivery improvement in 2H.” – Evans
Looking forward, Vestas is maintaining its 2019 guidance of revenue in the range of €10.75 billion to €12.25 billion, with an EBIT margin before special items in the range of 8-10% and total investments of around €700 million.
The company’s first quarter earnings were reported a day after Anders Runevad, the current Group Chief Executive Officer and President of Vestas, announced that he was stepping down on August 1 to be replaced by Henrik Andersen who is currently Group CEO of Hempel A/S and a member of Vestas’ Board of Directors. Runevad will remain involved with Vestas until mid-2020 and will also remain Chairman of MHI Vestas Offshore Wind.
“After completing the turnaround, implementing our Profitable Growth Strategy, and bringing wind energy on par with fossil fuel, Vestas and the industry have entered a new phase and I believe this is the right time for me to step down,” explained Anders Runevad. “Today, we are the global leader in wind and have started our journey to become the global leader in sustainable energy, and I’m pleased to hand over a company in great shape that will also benefit from the perspective of a new leader. I would like to take this opportunity to thank all the dedicated employees I’ve worked with over the last six years and I look forward to supporting Henrik and Bert as an advisor.”
“I’m truly excited by the opportunity to join Vestas and continue the company’s journey to become the global leader in sustainable energy solutions,” added Henrik Andersen, speaking regarding his appointment. “I’ve been part of Vestas for the last six years and will be working closely with Anders and the rest of the management team to ensure a smooth transition, so we execute successfully in 2019, prepare for the future and drive the energy transition forward.”