Europe: Vestas half year results - On target to meet full year forecast

In the second quarter of 2009, Vestas achieved revenues of EUR1221 million, 11% up on the same period a year earlier. Profit fell 15% to EUR78 million.

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Firm and unconditional orders at the end of June stood at EUR4 billion, but the distance between the mid-year revenue of EUR2316 million and the company's forecast EUR7.2 billion for 2009 caused confusion among market analysts. They had expected Vestas to downgrade its expectations for the year - and they still expect that to happen come November and publication of the company's third quarter results.

Ditlev Engel's response from behind the scenes at Vestas is that there is no reason to reduce the 2009 forecast. Engel also maintains his expected 2009 margin for earnings before interest and tax (EBIT) of 11-13%. EBIT in the first half year was 6.6%.

Behind the management's optimistic outlook lies its belief that the global credit crisis, which since autumn 2008 has slowed the flow of wind turbine orders worldwide, is slowly easing and the impact of government economic stimulus packages around the world is now being felt in the wind industry. In addition, Vestas reports potential orders for EUR4.4 billion, though analysts do not fully accept of the validity of that claim.

The criteria used by Vestas to classify potential orders, however, is that they must have been placed by customers, but have not yet been through the company's internal review process to receive the final rubber stamp. That process was instigated by Engel some years back to avoid the risk of Vestas selling turbines at a loss. The presumption is that the review board has thoroughly checked the quality of the current orders prior to Engel's decision to publicly maintain his 2009 revenues forecast.

Bottlenecks in production, typically seen in the form of long waiting times for major wind turbine components, no longer exist. As a result, orders can be expedited faster than in recent years when they - and order down payments - were placed up to two years and more in advance.

Further adding to Vestas' belief in the veracity of its forecast is the seasonal nature of the wind business. The autumn period has traditionally returned the largest volume of annual industry revenues over the past 25 years. In 2008, despite the onset of the financial crisis, Vestas achieved 70% of its revenues and 80% of its profit in the second half of the year.

Vestas' plans to increase wind turbine production capacity in both the United States and China are proceeding unabated, reports the company. Despite the number of staff dismissed this year in northern Europe, the north European division is still running at over capacity. Originally Vestas announced it was firing 1900 workers, but in the event dismissals were reduced to 1567. In other parts of the world Vestas continues to expand its workforce, which at the end of June amounted to 21,153 staff.

Vestas' share price, which between the end of July and mid-August rose from DKK 342 to DKK 398, fell in the week prior to publication of the half year results on August 18, hitting a low of DKK 372 before partly recovering to DKK 381 towards the end of the month.

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