Making money and right on target -- Vestas this time keeps its promise with first half year in profit

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In the second quarter of 2006, Vestas increased its turnover by 40% to EUR 900 million compared with the same period last year and turned a deficit of EUR 53 million for the April to June period in 2005 to a profit of EUR 28 million this year. It is the first time in five years that Vestas has turned a profit in the first half year. For the entire year so far, Vestas' profit is EUR 34 million compared with a loss of EUR 90 million in the first half of 2005. First half year earnings before interest and tax (EBIT) are significantly improved at 2.1% compared with last year's -7.9%.

The improvement is down to tighter control of contracts, which the previous management, according to CEO Ditlev Engel, "certainly did not have the requisite overview" of and which led to a "number of orders in the US with very unfavourable terms and poor profitability." That era has ended, says Engel. "Vestas has demonstrated industry leadership by being the first to introduce global price increases and revised contractual terms and conditions."

The company believes that Asia will be by far the strongest market in the long term and is closing factories where production is unprofitable. At the moment, nacelle factories in the Australian state of Tasmania and in Scotland are under the axe. "We operate a fine-tuned global business in a fierce competitive setting. The days of wind turbine romance are long gone," says Engel.

Price rises

The challenges for Vestas today are on overheated markets creating "volatility and uncertainty" with 12-15 month timelines for supply of key components capping Vestas' growth. Rises in steel and copper prices are also a concern. They are "pretty well hedged" for this year but copper prices are "a little more difficult," according to Engel. In addition, there are technical "quality and performance problems," which are not specified further. Vestas expects solutions to have been identified and implemented by the end of 2007.

Engel retains his cautious EBIT projection for the full year of 4-7%. As stated before, if components are delivered as planned and technology and performance problems resolved correctly, the top end of the wide range will be reached. "The key factor of uncertainty is whether we will be able to ship our products according to schedule, because EBIT ultimately hinges on the shipment and the timing of the customer's final takeover of a wind turbine," he says.

Vestas maintains its outlook: revenues of EUR 3.6-3.8 billion for the full year (compared with EUR 3.58 billion in 2005) and in 2008 a profit of at least 10% of turnover and 35% of the world market.

Stock market analysts in Denmark are having a hard time making up their minds about how to interpret Vestas' second quarter results. According to Jyske Bank, Vestas' shares, which were trading at a little over DKK 160 late last month, are overvalued. Its target is DKK 139. In contrast, Danske Bank, which has a "buy" recommendation on the shares, says they are undervalued. Its target is just short of DKK 200.

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