Denmark

Denmark

Blade repairs and upgrades hit Vestas' Q2 earnings

Vestas reissues guidance as losses increase

Vestas recorded firm and unconditional orders of 4,148MW in the second quarter of 2020, down 27% from one year ago
Vestas recorded firm and unconditional orders of 4,148MW in the second quarter of 2020, down 27% from one year ago

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Vestas swung to a €5 million loss in the second quarter of the year, with its earnings hampered by blade repair costs, but the company reintroduced its full-year guidance as visibility has improved.

Its €5 million loss was down from a €90 million profit from one year earlier, and a €85 million loss for first half of 2020 is an even starker contrast to the €115 million profit in the first half of 2019.

The Danish manufacturer’s Ebit margin before special items was squeezed to 1% in Q2 2020 – down five percentage points from one year earlier – as its earnings fell 73% year on year to €34 million.

This was despite revenue increasing 67% to €3.5 billion in Q2 and was primarily due to €175 million of extraordinary warranty provisions for the “specific repair and upgrade of already-installed blades”, the company explained.

CEO Henrik Andersen remained tight-lipped on the issue in a conference call with reporters,but described the issue as being related to "high intensity lightning". Meanwhile the manufacturer stated the provisions "are not related to current or future production but cover a specific repair and upgrade of a confined, albeit considerable number of blades that are already installed" in its Q2 report.

A spokesman for the manufacturer added that the issue relates to a “confined number of sites across specific parts of the world, experiencing high-intensity lightning”.

Without these provisions, Vestas’ underlying margin would have been 5.9%, which Henrik Andersen said “showcases good execution that gives us confidence to deliver improving results throughout the remainder of the year.

Vestas reintroduced its full-year guidance with an unchanged outlook for revenue of €14-15 billion and an updated the Ebit margin before special items of 5-7% – down from 7-9% previously.

The company had withdrawn its outlook for 2020 in April due to the “poor visibility” caused by the coronavirus pandemic.

Vestas’ free cash flow before acquisitions and financial investments of negative €78 million in Q2 2020 was on par with the negative €75 million from one year ago. Similarly, its free cash flow for the first half of 2020 of negative €997 million was on a par with the negative €951 million from H1 2019, and was mainly due to the build-up of inventory for deliveries during the rest of 2020.

Vestas recorded firm and unconditional orders of 4,148MW in the second quarter of 2020, down 27% from the same period in 2019.

Meanwhile, its wind turbine order backlog grew 1.8% to €16.2 billion by the end of June, and its service order backlog grew 21% to €18.9 billion.

The manufacturer expects its total investments for 2020 to be below €700 million, the figure it had initially forecast for spending this year.

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