Vestas Wind Systems A/s · OMXCOP:VWS
Vestas Wind Systems A/s — Q3 2011 Earnings Presentation
84 slides from Vestas Wind Systems A/s's earnings presentation, Nov 9, 2011
Slide 1: Third quarter 2011 and the years to come
Third quarter 2011 and the years to come 9 November 2011 │ Vestas │ Aarhus │ Denmark
Slide 2: Agenda
Agenda 1. Introduction Mr Engel 2. Nine months 2011 Mr Nørremark 3. Guidance 2011 Mr Nørremark 4. Vestas as of today Mr Engel 5. Challenging 2012 and 2013 Mr Engel 6. Financial priorities and goals Mr Engel 7. Q & A Mr Engel and Mr Nørremark 2 Third quarter 2011
Slide 3: Disclaimer and cautionary statement
Disclaimer and cautionary statement This presentation contains forward-looking statements concerning Vestas' financial condition, results of operations and business. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking state
Slide 4: Introduction
Introduction
Slide 5: Triple15: Cancelled
Triple15: Cancelled. It no longer makes sense to talk about revenues of EUR 15bn four years from now. 5 Third quarter 2011
Slide 6: This is about improving profit and securing cash flow
This is about improving profit and securing cash flow. 6 Third quarter 2011
Slide 7: Major changes in major markets
Major changes in major markets Two years ago Today North America No PTC extension expected. No Federal Renewable Energy Standard. Europe Sovereign crises in Europe. Asia Intense competition. 7 Third quarter 2011
Slide 8: New opportunities in new markets
New opportunities in new markets. 8 Third quarter 2011
Slide 9: Wind Power becomes more and more competitive
Wind Power becomes more and more competitive. Day-by-Day! 9 Third quarter 2011
Slide 10: Our Vision: Wind, Oil and Gas. INTACT!
Our Vision: Wind, Oil and Gas. INTACT! 10 Third quarter 2011
Slide 11: 2012 and 2013: Challenging years
2012 and 2013: Challenging years due to macro economic outlook. 11 Third quarter 2011
Slide 12: Our Mission: Failure is not an option. INTACT!
Our Mission: Failure is not an option. INTACT! 12 Third quarter 2011
Slide 13: Our high ambitions are not cancelled
Our high ambitions are not cancelled. 13 Third quarter 2011
Slide 14: IEA: Delaying action is a false economy
International Energy Agency As of this morning, 9 November 2011 ‘Delaying action is a false economy: For every $1 of investment avoided in the power sector before 2020 an additional $4.3 would need to be spent after 2020 to compensate for the increased emissions.’ Source: IEA, World Energy Outlook 2
Slide 15: Nine months
Nine months 2011
Slide 16: Activity level increased. Margins reflect mix and volume.
Third quarter 2011 Activity level increased. Margins reflect mix and volume. Strong operating cash flow performance. 16 Third quarter 2011
Slide 17: Activity at Vestas
Activity at Vestas Our main cash driver Shipments MW Q3 2011 vs. Q2 2011: Shipments up 8%. 1,525 1,456 1,417 Q3 2011 vs. Q3 2010: Shipments up 5%. 9M 2011 vs. 9M 2010: Shipments up 47%. 588 634 387 Q1 Q2 Q3 Q1 Q2 Q3 2010 2011 17 Third quarter 2011
Slide 18: Deliveries to customers
Deliveries to customers The main revenue driver Deliveries MW Q3 2011 vs. Q2 2011: 1,688 Deliveries up 13%. 1,270 Q3 2011 vs. Q3 2010: Deliveries down 25%. 1,127 839 864 9M 2011 vs. 9M 2010: 758 Deliveries down 1%. Q1 Q2 Q3 Q1 Q2 Q3 2010 2011 18 Third quarter 2011
Slide 19: When were the 1,270 MW shipped?
When were the 1,270 MW shipped? Shipments and deliveries MW 1,270 732 342 152 44 2010 and before Q1-2011 Q2-2011 Q3-2011 Total deliveries Q3-2011 Timing of shipments 19 Third quarter 2011
Slide 20: Profit and loss account versus cash flow
Profit and loss account versus cash flow Major fluctuations in earnings Q-on-Q mEUR Q3 Q2 mEUR Q3 Q2 Change 2011 2011 2011 2011 Change Revenue 1,337 1,401 (5)% Operating cash flow 407 126 223% Cost of sales (1,227) (1,153) 6% CF from investments (131) (189) (31)% Gross profit 110 248 (56)% Free cash
Slide 21: Every contract has its own characteristics
Every contract has its own characteristics. 21 Third quarter 2011
Slide 22: Quarterly profit & loss fluctuations driven by mix of contracts
Quarterly profit & loss fluctuations driven by mix of contracts Distribution of margins Pricing and risk variables +200 projects a year Not exhaustive 1. Scope – type of contract. 2. Uniqueness of offering. 3. Value of revenue. 4. Scale. 5. OPEX/CAPEX allocation. 6. Design lifetime. 7. Cost differen
Slide 23: Variations in revenue recognition between contract types
Variations in revenue recognition between contract types However, risk element in each contract is the primary margin explanatory variable Delivery split on contracts MW 1,400 From 1% turnkey/EPC in 1,200 656 Q2 to 20% in Q3. 719 1,000 Turnkey projects generate 800 Transfer of risk. higher margins w
Slide 24: Project profitability
Project profitability Illustrative example Supply & Installation EPC Contracts / Turnkey • Nacelle Revenue: 100 • Foundations Revenue: 50 • Blades Cost: 70 • Roads Cost: 45 • Tower Profit 30 • Civil works Profit 5 • Installation Profit (%) 30 • Cranes Profit (%) 10 • Transport • Installation • Trans
Slide 25: Fixed cost base
Fixed cost base Depreciation and amortisation explain most of the increase from Q2-2011 to Q3-2011 Fixed cost mEUR 197 202 192 178 169 171 140 Q1-2010 Q2-2010 Q3-2010 Q4-2010 Q1-2011 Q2-2011 Q3-2011 25 Third quarter 2011
Slide 26: Net working capital
Net working capital Make-to-order pays off mEUR 9M Q2 9M 2011 2011 Change 2010 Inventories 2,608 2,545 2% 4,000 Stable inventories and increased prepayments Trade receivables 591 629 (6)% 791 reflect that make-to- Construction contracts in progress 188 113 66% 172 order is paying off. Other receivab
Slide 27: Net working capital items – deeper dive
Net working capital items – deeper dive Inventories consisting of: 1. Contract-related inventories. 2. Components. Prepayments consisting of: 1. Milestone payments. 2. Down payments and prepayments. 27 Third quarter 2011
Slide 28: Balance sheet
Balance sheet Assets (mEUR) Q3 Q2 Q3 Change Change 2011 2011 2010 Intangible assets 1,177 1,145 3% 966 22% • Completed development projects 512 170 201% 144 256% Increase in completed development projects and • Development projects in progress 257 568 (55)% 423 (39)% decrease in development projects
Slide 29: Net debt
Net debt To be further reduced Net debt mEUR 1,071 1,000 Net debt reduced by 22% 896 from Q2-2011 to Q3-2011 834 727 579 404 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2010 2011 29 Third quarter 2011
Slide 30: Warranty provisions and quality
Warranty provisions and quality Warranty provision Lost Production Factor Per cent of revenue Per cent 6.6% 7 5.7% 6 4.5% 5 4 2.8% 3 2.4% 2 1 0 2007 2008 2009 2010 9M 2011 Failure is not Lost Production Quality / an option Factor 30 Third quarter 2011
Slide 31: Cash flow statement
Cash flow statement Main lines mEUR Q3 Q2 Q3 9M 9M 2011 2011 2010 2011 2010 Profit for the period (60) 55 187 (90) 5 Adjustment for non-cash transactions 15 69 263 161 141 Corporation tax paid (11) (25) (23) (43) (79) Interest received and paid (net) (9) (11) (24) (34) (33) Cash flow from operating
Slide 32: Shipments main determinant of cash flow
Shipments main determinant of cash flow Shipments Cash flow from operations MW mEUR 3,000 800 2,500 600 2,000 400 1,500 200 1,000 0 500 ‐200 ‐ ‐400 Shipments (quarterly) MW Cash flow from Operations 32 Third quarter 2011
Slide 33: Key takeaways: Shipments generate cash flow. Deliveries generate revenue.
Key takeaways Shipments generate cash flow. Deliveries generate revenue. Activity in Vestas is reflected in ’Inventories’ and ‘Prepayments’ rather than in Profit & Loss account. Projects stay longer in ‘Order backlog’ and on ‘Inventories’. 33 Third quarter 2011
Slide 34: Guidance 2011
Gujdance 2011 meas a aI. »
Slide 35: Why did we adjust our guidance?
Why did we adjust our guidance? 35 Third quarter 2011
Slide 36: Our new generator plant in Travemünde, Germany
The reason to adjust guidance: Our new generator plant in Travemünde, Germany Generators are being produced every day – but not in the expected quantities. 36 Third quarter 2011
Slide 37: The reason to adjust guidance: Our new generator plant
The reason to adjust guidance: Our new generator plant Delivery interaction Raw Factory Manufac- material & assembly Transport Installation Operation turing suppliers & testing Raw material Gear Schedule Raw material Generator Cranes Hydraulic Lifting Hydraulic Nacelle Nacelle systems equipment Elec
Slide 38: The reason to adjust guidance: Our new generator plant
The reason to adjust guidance: Our new generator plant Delivery interaction Raw Factory Manufac- material & assembly Transport Installation Operation turing suppliers & testing Raw material Gear Schedule Raw material Generator Cranes Hydraulic Lifting Hydraulic Nacelle Nacelle systems equipment Elec
Slide 39: Status on our new generator plant
Update: Status on our new generator plant The plant is producing generators 1 – but not enough. The ramp-up of the generator plant is expected 2 to be completed early 2012 and to deliver the required quantities for 2012. A company announcement will be issued, 3 when we can finally confirm this. 39 T
Slide 40: Guidance 2011
Guidance 2011 Order intake, firm and unconditional (MW) 7,000-8,000 Production and shipments (MW) ~5,500 Revenue (mEUR) ~6,400 - of which service revenue (mEUR) 700 EBIT margin (%) ~4 EBIT margin in Q4 of ~13%. EBIT margin, service (%) 15 Financials, net (mEUR) (60) Tax rate (%) 28 Investments (mEUR
Slide 41: Order intake of 7,000-8,000 MW in 2011
Order intake of 7,000-8,000 MW in 2011 Stable average selling price despite market sentiment Order intake 2011 Average selling price of order intake MW Price/MW Mid- 1.4 range 1.2 2,426 1.0 0.8 Announced 0.6 orders 0.4 0.2 630 2,265 1,316 863 0.0 Q1 Q2 Q3 Oct Nov. - Dec. FY FY FY FY FY Q1 Q2 Q3 Q4 Q
Slide 42: 2011 order intake
2011 order intake Expected Nine months 2011 MW split on geography MW split on geography 50% 44% 39% 35% 17% 15% Europe Europe Americas Americas Asia Pacific Asia Pacific Europe Americas Asia Pacific 42 Third quarter 2011
Slide 43: Please still remember!
Please still remember! The back-end loaded 2011 means that recognition of revenue and EBIT relies on smooth project execution in Q4. 43 Third quarter 2011
Slide 44: Cash generation
Cash generation Strong working capital improvement Cash flow from operations Investments mEUR mEUR 1,000 800 600 400 200 0 (200) 2007 2008 2009 2010 2011 (400) (600) (800) (1,000) Free cash flow 44 Third quarter 2011
Slide 45: Vestas as of today
Vestas as of today
Slide 46: Global presence. Most versatile product platform.
Qualified Global presence. In the region for the region. Most versatile product platform. Strong IPR giving freedom to operate. Product roadmap matching future demand. 46 Third quarter 2011
Slide 47: Global presence
Global presence 47 Third quarter 2011
Slide 48: Europe: Adjustments along the way
Adjustments along the way Employees – In Europe – Outside Europe Number 25,000 April 2009: Announced lay- 20,000 offs of 1,875 employees. November 2010: 15,000 Announced lay- offs of 3,000 employees. 10,000 Europe 5,000 0 2006 2007 2008 2009 2010 Q3 2011 48 Third quarter 2011
Slide 49: Versatile product platform
Versatile product platform High wind │ Medium wind │ Low wind │ Onshore and Offshore 49 Third quarter 2011
Slide 50: Service business still more important
Service business still more important Service revenue mEUR per year 700 623 504 Strategic agreement with Caterpillar. 396 298 214 2006 2007 2008 2009 2010 2011E 50 Third quarter 2011
Slide 51: Recent service offerings
Recent service offerings SiteHunt® SiteDesign® Electrical PreDesign Power Plant Controller VestasOnline® Business (SCADA) version 3.9 – Enhanced data. 51 Third quarter 2011
Slide 52: Installed capacity giving sizable base for service business
Installed capacity giving sizable base for service business 10 largest manufacturers in 2010 Accumulated installed capacity (MW) 47,375 Source: Vestas 52 Third quarter 2011
Slide 53: Enlarging the scope of our business
Enlarging the scope of our business 53 Third quarter 2011
Slide 54: Constantly improving quality and efficiency
Constantly improving quality and efficiency Safety Patent applications Injuries per one million working hours Number 227 25.3 20.8 153 165 15.6 100 8.1 5.0 50 3.3 15 2006 2007 2008 2009 2010 2011 - 2005 2006 2007 2008 2009 2010 9M Efficiency Lost Production Factor Blades, 44 metres Per cent +40 per
Slide 55: What customers demand
What customers demand Reliable technology. ► Track record of installed capacity of design platforms offered. ► Turbine development plans. Relevant capability. ► Worldwide manufacturing capacity. ► Existing sub-supply chain management. ► Past experiences in up-scaling capacity. Sufficient organisatio
Slide 56: Competition remains fierce
Competition remains fierce. 56 Third quarter 2011
Slide 57: Challenging 2012 and 2013
Challenging 2012 and 2013
Slide 58: Preparing Vestas for a situation without a PTC in 2013
We are – right now – preparing Vestas for a situation without a PTC in 2013. 58 Third quarter 2011
Slide 59: To be here in the long run – we cannot fail in the short run
To be here in the long run – we cannot fail in the short run. 59 Third quarter 2011
Slide 60: We are not adjusting – we are changing
We are not adjusting – we are changing. 60 Third quarter 2011
Slide 61: Costs, Investments, Revenue
COSTS INVESTMENTS REVENUE 61 Third quarter 2011
Slide 62: Higher capacity utilisation. More efficient use of resources.
Higher degree of capacity utilisation. ► Use all of our endeavours to create valuable order intake. ► If orders are lacking, capacity will be reduced. More efficient use of resources. ► Leverage successful implementation of shared services. ► Sharper focus on the return on our efforts. ► Improved sc
Slide 63: New organisational set-up
New organisational set-up. ► Taking even more care of our customers. ► New organisational and management structure ► to be initiated on 8 February 2012. 63 Third quarter 2011
Slide 64: Investments will be reduced and directed towards intangible assets
Investments will be reduced and directed towards intangible assets. ► Sub-suppliers/partners to carry more investments. ► Investing in new service offerings to our customers. ► Supply chain, production and quality testing facilities are in place. 64 Third quarter 2011
Slide 65: V112 – an important part of our future
V112 – an important part of our future Index figures Adjacent technology includes: Adjacent technology 28 New generator technology development GridStreamer™ technology Test and verification facilities and equipment Adjacent technologies developed in connection with one new WTG platform will be
Slide 66: Leveraging a new platform
Leveraging a new platform 1995 2004 2008 2010 V63-1.5 MW and V66- As a further development, the V90-1.8 MW 60 Hz (US) 2 MW GridStreamer™. 1.65, first multi-MW was V90-1.8 MW combines a 90 version introduced. Adapt to new grid the basis for the 2 MW metre-rotor with the well-tested requirements platf
Slide 67: Cost-out on products, without loss of quality
Cost-out on products, without loss of quality. 67 Third quarter 2011
Slide 68: Our market outlook 2012-2013
Our market outlook 2012-2013 Americas Asia Pacific including China ► The market is expected to peak in 2012 and ► Uncertain market development and decline significantly in 2013 primarily due to dynamics in China tax credits in the US expiring end 2012. ► Demand in India has picked up in 2011 and ► D
Slide 69: Revenue growth
Revenue growth Leverage on proven track record to enter new markets 10 largest manufacturers in 2010 Number of markets where each manufacturer has installed capacity 67 69 Third quarter 2011
Slide 70: SBU Mediterranean (MED)
SBU Mediterranean (MED) A case demonstrating a global Vestas Order intake Relative mix between traditional and new markets 18% 23% 46% 58% 2008 2009 2010 9M 2011 Traditionel Traditional MED markets New MED markets 70 Third quarter 2011
Slide 71: Revenue sources to expand
Revenue sources to expand New and existing New New New Turbines Upgrades Services Offerings …while constantly lowering the Cost of Energy. 71 Third quarter 2011
Slide 72: Developing customer landscape
Developing customer landscape. Pension funds. CaCoCos. Carbon Conscious Companies. 72 Third quarter 2011
Slide 73: Inclusiveness
Inclusiveness. Vestas will be sustainable in every aspect of the way we do business. 73 Third quarter 2011
Slide 74: Financial priorities and goals
Financial priorities and goals
Slide 75: For the benefit of primarily four stakeholders
For the benefit of primarily FOUR STAKEHOLDERS: 1. CUSTOMERS │ 2. SHAREHOLDERS │ 3. EMPLOYEES │ 4. POLITICIANS 75 Third quarter 2011
Slide 76: Guidance for 2012
Guidance for 2012 New guidance principles to be announced on 8 February 2012 We will also evaluate our communication principles Reducing costs by at least EUR 150m end 2012. Investments of EUR 650m. Tangibles: EUR 200m │ Intangibles: EUR 450m Positive free cash flow. 76 Third quarter 2011
Slide 77: Mid-term guidance
Mid-term guidance Vestas expects to gain market share and to deliver a high single-digit EBIT margin with a normalised US market. 77 Third quarter 2011
Slide 78: Investing in offshore
Investing in offshore The V164 will be put into production in 2015 when the required orders have been received. 78 Third quarter 2011
Slide 79: Vestas and the USA
Vestas and the USA Preparing for no PTC in the USA in 2013 2012 2013 Cost reduction of at Huge impact Vestas TOTAL least EUR 150m for Vestas Vestas USA End 2012: Decision ? 79 Third quarter 2011
Slide 80: Vestas expects to enter 2012 with the largest order backlog ever
Vestas expects to enter 2012 with the largest order backlog ever. 80 Third quarter 2011
Slide 81: This is about improving profit and securing cash flow
This is about improving profit and securing cash flow. 81 Third quarter 2011
Slide 82: Financial Calendar
Financial Calendar 4th Quarter 2011 1st Quarter 2012 8 February 2012 2 May 2012 London New York City United Kingdom USA 82 Third quarter 2011
Slide 83: Q&A
Q&A
Slide 84: Copyright Notice
Copyright Notice The documents are created by Vestas Wind Systems A/S and contain copyrighted material, trademarks, and other proprietary information. All rights reserved. No part of the documents may be reproduced or copied in any form or by any means - such as graphic, electronic, or mechanical, i