Vestas Wind Systems A/s · OMXCOP:VWS
Vestas Wind Systems A/s — Q3 2012 Earnings Presentation
45 slides from Vestas Wind Systems A/s's earnings presentation, Nov 7, 2012
Slide 1: Third quarter 2012 - Preparation for a profitable 2013 continues
Third quarter 2012 - Preparation for a profitable 2013 continues Aarhus, 7 November 2012
Slide 2: 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 3: Agenda
Agenda 1. Introduction Ditlev Engel CEO 2. Q3 financials Dag Andresen CFO 3. Order intake Q3 Ditlev Engel CEO 4. Outlook Ditlev Engel CEO 5. Questions & answers Ditlev Engel and Dag Andresen 3 Q3 2012
Slide 4: Introduction
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Slide 5: Secure profitability, secure cash flow and improve customer relations
Secure profitability, secure cash flow and improve customer relations Two revenue streams; wind turbines and service Scalability and flexibility Product cost out Closing a tough 2012 and preparing for an even tougher 2013 market A scalable organisation and a new management team Retention of quality
Slide 6: Closing a tough 2012
Closing a tough 2012 Preparing for an even tougher 2013 market 2005-2011 Nov 2011 Jan 2012 Aug 2012 H2 2012 2013 Investing in Organisational 2,335 layoffs Intensification of Implementation Additional headcount regionalisation change process during 2012 cost savings. and execution. reductions of 2,00
Slide 7: Headcount reductions
Headcount reductions Headcount reductions Number of employees ~2,000 ~ 6,700 Announced headcount reductions of 3,700 during 2012 realised in November 2012. ~1,000 Approx 1,000 employees will leave Vestas before the end of ~1,000 2012 or early 2013, primarily temporary employees, 1,677 employees work
Slide 8: Additional cost savings
Additional cost savings Expected cost savings during the year mEUR >400 150 Cost savings of more than EUR 400m expected from end 2011 to end 2013. >250 2012 2013 8 Q3 2012
Slide 9: Delivering improvement in productivity
Delivering improvement in productivity Shipments Total employees end of period GW Number of employees -21% 6.3 22,721 +24% 5.1 ~18,000 2011 2012E 2011 End of 2012 or early 2013E 9 Q3 2012
Slide 10: Targeting improvement in productivity
Targeting improvement in productivity Shipments Employees excl. of service business GW Number of employees end of period 5.0 5.0 >10% • Productivity improvement of at least 10 per cent vs 2007 despite higher insourcing in several areas (e.g. generators and blades). • Further productivity improvement
Slide 11: Implemented initiatives, YTD
Implemented initiatives, YTD Manufacturing Turbines R&D / Solutions and Services • Sold tower factory in Varde (DK). • Closed down Turbines R&D activities in Houston, Texas (US), • Closed factory in Hohhot (CH). Boston, Massachusetts (US), Louisville, Colorado (US), Risø (DK) • Merged all manufactur
Slide 12: Organisation is changing
Organisation is changing Executive Management in place President and CEO Ditlev Engel CEO staff functions Manufacturing Turbines R&D Global Solutions & Finance Sales Jean-Marc Lechêne Anders Vedel Services Dag Andresen Juan Araluce Anders Vedel 12 Q3 2012
Slide 13: Main events in Q3 report
Main events in Q3 report • Q3 earnings, revenue and cash flow in line with expectations. • Special items increased due to writedowns. • Fixed costs and capex continue the downward trend. • High Q4 volume and uncertainty; FCF guidance lowered to EUR (500)-0m. • Q4 order intake expected to be largest
Slide 14: Q3 financials
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Slide 15: Activity level at factories
Activity level at factories Shipments by region MW +6% 2,160 187 • Shipments up by 6 per cent. 1,626 1,616 • Shipments in the USA now dampening 1,525 1,456 1,417 1,478 101 off as PTC expiration gets closer. 519 110 246 1,194 344 432 404 • Full-year shipments expected to 604 931 712 427 increase by a
Slide 16: Deliveries
Deliveries Deliveries are the primary revenue driver Deliveries (TOR) by region MW 2,557 495 • Deliveries in Americas driven by PTC +15% expiration in the USA. 1,956 1,688 613 337 • Deliveries expected to peak in Q4, but 1,464 uncertainty remains high due to: 555 495 1,307 97 1,270 1,127 1,108 155 •
Slide 17: Income statement
Income statement mEUR Q3 2012 Q3 2011 Change FY 2011 Revenue 1,988 1,337 49% 5,836 • Revenue up by 49 per cent. Cost of sales (1,785) (1,227) 45% (5,111) Gross profit 203 110 85% 725 Fixed costs* (190) (202) (6)% (763) Operating profit (EBIT) before special items 13 (92) - (38) Special items (153) -
Slide 18: Special items
Special items Q3 special items mEUR 153 Development projects: 62 • Mainly blade projects and tower crane. Write down of other assets: • Closure of R&D facilities, centralisation of Group Treasury 56 and scaling down in India. 35 September layoffs of approx 1,000 employees. Special items total Write
Slide 19: Deliveries and revenue in Q3
Deliveries and revenue in Q3 Q3 revenue grew faster than deliveries due to: • Higher proportion of delivered MW in Europe and the Americas. • Higher proportion of V112-deliveries. • High proportion of turnkey deliveries with low revenue effect in the third quarter of 2011. • Positive currency effect
Slide 20: Gross margin
Gross margin Gross profit and margin mEUR and percentage 23% 20% Q3 gross margin at 10.2 per cent 18% 613 • Quarter-on-quarter developments in 15% project margins may result in substantial 13% fluctuations in earnings. 449 • YTD gross margin is negatively 10% impacted by too high wind turbine costs
Slide 21: Quarterly P&L fluctuations driven by contract mix
Quarterly P&L fluctuations driven by contract mix 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 differentiation 8. Risk allo
Slide 22: Fixed costs
Fixed costs Fixed costs excl. of depreciation and amortisation Depreciation and amortisation • Fixed costs to be further lowered by September • Increase in depreciation and amortisation D&A driven by layoffs. completion of R&D and start-up of serial production of the V112 and GridStreamer™. • Cost r
Slide 23: Reduction of employee costs
Reduction of employee costs Employees end of period Number of employees 2,631 22,721 Headcount reductions in 2012 and 2013 will contribute to ~1,000 reducing costs by more than 20,090 EUR 400m with full effect as ~1,000 from the end of 2013. ~ 19,000 ~2,000 ~18,000 ~16,000 2011 FY 2012 Q3 November E
Slide 24: 2012: EBIT development
2012: EBIT development EBIT Q311 vs Q312 EBIT Q312 vs Q212 • Higher volume and improved service earnings, but • Higher volume but lower wind turbine margins lower wind turbine margins on projects delivered • Quarter-on-quarter developments in earnings may and higher D&A. show substantial fluctuation
Slide 25: Service revenue
Service revenue Service revenue mEUR +46% 233 227 • Service revenue increased by 203 203 46 per cent compared to Q3 2011. 173 169 169 160 159 149 • 9M EBIT before allocation of 146 140 Group costs: EUR 137m. 122 Margin: 20.7 per cent. • 9M EBIT after allocation of Group costs: EUR 77m. Margin: 11.6
Slide 26: Balance sheet
Balance sheet Assets (mEUR) Q3 2012 Q2 2012 Change Q3 2011 Change Intangible assets 1,137 1,233 (8)% 1,177 (3)% • Write down of R&D projects and Property, plant and equipment 1,799 1,869 (4)% 1,816 (1)% centres. Other non-current assets 469 445 5% 358 31% Non-current assets 3,405 3,547 (4)% 3,351 2%
Slide 27: Change in net working capital
Change in net working capital NWC decrease over the last 12 months NWC increase during Q3 • Increase in inventories not balanced by increase in • Decrease in inventories balanced by decrease in prepayments. prepayments. • Trade payables down explaining the increase in NWC. NWC change over the last 1
Slide 28: MW under completion
MW under completion Under completion by region MW 2,915 +6% 423 2,649 2,497 285 2,299 510 • MW under completion increased by 6 506 2,044 322 per cent. 1,984 1,821 438 1,754 477 447 428 1,644 329 728 463 • Planned sale of 90 MW project in Chile 291 366 360 474 will lower MW under completion. 301 2,20
Slide 29: Better performance of wind turbine fleet
Better performance of wind turbine fleet Warranty provisions and consumption Lost production factor (LPF) • Low warranty consumptions. • End Q3: LPF at 2 per cent. • Warranty consumption was EUR 33m lower than the • LPF measures potential energy production not captured provisions in the first nine m
Slide 30: Cash flow statement
Cash flow statement • Cash flow mEUR Q3 2012 Q3 2011 FY 2011 negatively Cash flow from operating activities before impacted by 49 (65) 93 change in working capital change in prepayments and Change in working capital (151) 472 747 payables. Cash flow from operating activities (102) 407 840 • 69 per c
Slide 31: Net debt to EBITDA to improve further in Q4
Net debt to EBITDA to improve further in Q4 Net debt and debt coverage mEUR and ×EBITDA 5.1 • Net debt expected to be 3.6 reduced by year-end. 4.0 1.8 1,287 1,147 850 • Q4 2012 earnings 579 545 expected to be higher than in Q4 2011. -39 -137 0.8 -614 -0.1 -0.3 -1.8 FY FY FY FY FY Q1 Q2 Q3 2007 2008
Slide 32: Invested capital
Invested capital Property plant & equipment (PPE) and intangible assets mEUR and percentage Declining capex – higher D&A 4,500 54% 53% 4,000 50% 51% • Capex during the first nine months of 2012 was EUR 151m lower than 44% depreciation and amortisation. 3,500 43% 40% 39% 39% 3,000 • Vestas has initia
Slide 33: Return on invested capital
Return on invested capital Return on invested capital* (ROIC) Percentage 4% Improved ROIC, but still at an unacceptable level 2% • Growing service business increases ROIC. • Evaluation of and decision on manufacturing footprint including 0% identification of divestment and outsourcing opportunities.
Slide 34: Order intake Q3
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Slide 35: Wind turbine order intake
Wind turbine order intake Lower wind turbine order intake Price per MW • Global wind market slowdown. • Price per MW depends on a variety of factors i.e. wind turbine type, geography, scope, uniqueness of offering. • As usual, Q4 is expected to be the biggest quarter. • New products are higher price
Slide 36: Wind turbine order backlog
Wind turbine order backlog Wind turbine order backlog at a high level Order backlog by region (exclusive of service contracts) MW -13% 9,893 9,552 9,516 15% 15% 15% 8,304 • Value of wind turbine order backlog 7,622 17% equals EUR 8.3bn. 13% 28% 22% 25% • Price per MW in order backlog is EUR 22% 18%
Slide 37: Service backlog and order intake
Service backlog and order intake Service order backlog continues to increase • The service order backlog increased by 2 per cent during Q3. • Total service backlog amounts to EUR 4.9bn. • Average length of contracts is 6-7 years. 94% Announced orders with service agreement (9M 2012) Service backlog
Slide 38: Backlog: Wind turbines and service
Backlog: Wind turbines and service End Q3 2012: Combined backlog of EUR 13.2bn Wind turbines: Service: EUR EUR 8.3bn 4.9bn 38 Q3 2012
Slide 39: Outlook
4 Outlook
Slide 40: Outlook 2012
Outlook 2012 November August 2012 2012 Shipments (GW) ~6.3 ~6.3 Revenue (mEUR) 6,500-8,000 6,500-8,000 • Expected service revenue of - of which service revenue (mEUR) nearly 900 850 nearly EUR 900m. EBIT margin before special items (%) 0-4 0-4 EBIT margin, service* (%) ~17 ~17 • Special items increa
Slide 41: Investments
Investments Capex declining after years of high investments in regionalisation and technology Investments mEUR 808 789 -54% • Property, plant and 761 equipment is lowered by EUR 50m due to the lower 680 activity level in 2013. • Intangible investments are lowered by EUR 50m driven by more focused R&
Slide 42: Production tax credit or not – Vestas is prepared
Production tax credit or not – Vestas is prepared Aug 2012 6 Nov 2012 Nov-Dec 2012 End 2012 Senate Finance Committee US election “Lame duck” session Current PTC approved a bill including a expires one-year extension of the PTC* Vestas believes that the PTC will be At the same time, Vestas is prepare
Slide 43: Building blocks for a profitable 2013
Building blocks for a profitable 2013 • Adjusting operations to shipments of around 5 GW in an uncertain environment while still making a profit. 5 GW • Approx 18,000 employees end 2012 or early 2013. End 2013 employee target: 16,000. 16,000 employees • Cost reductions of more than EUR 400m; EUR 250
Slide 44: Questions & answers
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Slide 45: 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