Vestas profits fall despite increase in orders

DENMARK: In a recurrent theme for OEMs, increasing competition squeezed Vestas' profits in the third quarter despite a rise in orders and revenue.

Vestas received its first orders for the V150-4.2 in North America, Germany and Brazil in the third quarter

Revenue inched up 2% year-on-year to €2.8 billion and firm and unconditional orders totalled 3,261MW in the third quarter, up from 2,615MW in the same period last year.

However, the manufacturer’s operating profit (earnings before interest and taxation) was down 22% between 1 July and 30 September.

Vestas said this was due to a 17% drop in gross profit to €435 million, which in turn was driven by lower average project margins due to competitive markets.

However, downplaying the effect of industry competition, the manufacturer also noted in its third-quarter financial report that "project margins depend on a variety of factors: for example, wind turbine type, geography, scope, and uniqueness of the offering".

Vestas chief executive officer Anders Runevad added: "Although the industry remains highly competitive, average selling price in the third quarter saw continued underlying stabilisation."

Vestas key figures Jul-Sep 17 Jul-Sep 18 Jan-Sep 17 Jan-Sep 18
Revenue (€ million) 2,743 2,811 6,834 6,765
Turbine orders (€ billion) 2.1 2.5 6.1 6.4
Turbine orders (MW) 2,615 3,261 7,331 8,697

It received nearly 3.3GW of turbine orders in the third quarter: 1,958MW in the Americas, 823MW in Europe, the Middle East and Africa, and 480MW in Asia Pacific.

The expectation of market growth outside of Europe drove Vestas’ decision to lay off about 400 employees in September, with the axe to fall mainly in northern and central Europe

Nevertheless, third-quarter turbine orders meant Vestas had a record-high turbine order backlog of 13.8GW, worth approximately €10.5 billion, it stated.

The manufacturer also concluded service agreements with expected future revenue of €13.2 billion by the end of September.

This combined backlog is worth €23.7 billion, Vestas stated, an increase of 17% on its value one year earlier.

Its also generated €409 million of revenue from its service business in the third quarter, a growth of 11% year-on-year.

Vestas added that all regional markets contributed to this increase in revenue.

However, the manufacturer recorded a negative free cash flow at the end of the quarter, -€223 million, compared to €193 million a year earlier.

It stated this negative cash flow was "due to lower profit and a build-up of net working capital to cope with higher activity".

Vestas maintained its 2018 revenue guidance of €10-€10.5 billion.