Vestas Wind Energy: Annual report 2011

The results and revenue for the year are, however, substantially lower than the original expectations of an EBIT margin of 7 per cent and revenue of EUR 7bn, which is disappointing. It should be emphasised that the projects in questions have not been cancelled but postponed and that they are expected to be handed over and recognised as income in 2012, however, at a lower contribution margin due to higher costs than originally anticipated.

On the other hand, the intake of firm and unconditional orders of 7,397 MW with a value of EUR 7.3bn, was in line with expectations.

Net working capital amounted to EUR (71)m, an improvement of EUR 743m. The improvement was attributable especially to the reduction of component inventories following a successful make-to-order implementation, higher pre-payments and trade payables.
Outlook

Based on, among other things, input from a number of the company’s large shareholders, Vestas has decided to reduce the number of outlook parameters it provides to the public. Furthermore, Vestas has decided to introduce guidance ranges for earnings (EBIT), revenue and the free cash flow to take into account the heavy fluctuations characterising these items depending on timing of order intake, production, shipments and final delivery to the customers.

For 2012, Vestas expects to achieve an EBIT margin of between 0-4 per cent and revenue of EUR 6,500-8,000m, including service revenue, which is expected to rise to approx EUR 850m with an EBIT margin of around 14 per cent. The EBIT margin will be adversely affected primarily by too high production costs for the V112-3.0 MW turbine and the GridStreamer™ technology, which will be reduced in the course of the year and by an expected increase in depreciation and amortisation charges of approx EUR 100m. Total warranty and product provisions are expected to account for less than 3 per cent of the expected revenue for the year.

Shipments which are expected to increase to approx 7 GW with the present production plans will peak in the middle of the year, while deliveries may fluctuate heavily over the quarters. It should be emphasised that Vestas’ accounting policies only allow it to recognise ”supply-only” and ”supply-and-installation” projects as income when the risk has finally passed to the customer, irrespective of whether Vestas has already produced, shipped and installed the turbines. Disruptions in production and challenges in relation to wind turbines installation, for example bad weather, lack of grid connections and similar matters may thus cause delays that could affect Vestas’ financial results for 2012.

Total investments are expected to be EUR 550m, of which investments in intangible assets are expected to amount to EUR 350m, which among other things, includes higher investments in the development of the V164-7.0 MW offshore turbine. Total research and development expenditure is now expected to amount to EUR 450m in 2012. The lower investments in intangible assets and R&D expenditure are caused by a more focused R&D organisation. The free cash flow is expected to positive in 2012.

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