Vestas Wind Systems A/S (VWDRY.PK)
Q2 2010 Earnings Call
August 18, 2010 9:00 am ET
Ditlev Engel - President and CEO
Rupesh Madlani - Barclays Capital
Allen Wells - Morgan Stanley
Archie Fraser - Redburn Partners
Stig Frederiksen - ABG Sundal Collier
Martin Prozesky - Bernstein
Robert Clover - HSBC
Jason Channell - Goldman Sachs
Mark Freshney - Credit Suisse
Andreas Willi - JP Morgan
Teea Reijonen - Royal Bank of Scotland
Kasper Larsen - Macquarie
Patrick Hummel - UBS
Peter Rothausen - Danske Markets
Pearce Hammond - Simmons
Daniel Patterson - SEB
Christian Nagstrup - Jyske Bank
Scott McCollister - Ardour Capital
Claus Almer - Carnegie
Tom Gibney - Credit Suisse
Ben Lynch - BryanGarnier & Co.
Arnaud Brossard - Exane BNP Paribas
Sebastian Ubert - UBS
Vestas Wind Systems A/S Q1 2010 Earnings Call Transcript
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Good afternoon and welcome to Vestas Wind Systems first half results for the year 2010 and obviously also for Q2. Special welcome to press and analysts in the room here in London and of course also a special welcome to everybody who have decided to join us on the web. And of course, not least, a special welcome to all of my colleagues at Vestas.
We have decided to call this report "Mixed activity as expected," as obviously it is clear that there are a number of signs pointing in many different directions. And I guess this raised the question of how well is Vestas really doing. And I hope after the presentation today, it will give people a good flavor for why we actually do believe that Vestas is standing in a much stronger position than the actual result for the first half 2010 indicates.
If we start to look at the respective units at Vestas, it is clear that the activities have been very mixed. If we start with the production business units, they obviously have not been very busy for the simple fact of the order situation in 2009.
Let me just remind everybody that in 2009, we saw a decrease in the order intake of 50% compared to 2008, and the effect of this is really what we are seeing here in the first half 2010 and one of the reasons why we have also said when we looked at 2010 that we did expect the year to be very back-end loaded.
If we look into the sales business units, then they obviously have been extremely busy, as we have seen a significant progress on the actual order intake. We will come back and talk about this later on. And they of course have been very busy in signing of new orders. And in our technology R&D, they also have been extremely busy with a very high activity level, working not just on new technologies, but also ensuring getting, for instance, the V112 turbine into the market.
And therefore, we have set the mixed activities illustrated here by the three buttons of some on fast-forward and some, on the production side basically, on a pause button.
Trying to summarize in just a very few words, I can say that the low activity in the first half in the production business unit was as expected. And the fact that today we are reconfirming that we are on track for an order intake of 8,000 megawatts to 9,000 megawatts in the year 2010 I think also is very important to be aware of.
Unfortunately, we have decided for the first time in five years to make a revision of our guidance for the year, and I'll come back later on and discuss why we have decided to do that.
Let me also just say that despite this challenging first half 2010 that Vestas is still working proactively towards our Triple 15 aspiration, as you can see at the bottom on the right-hand side here.
Let's just first turn into the figures starting off by the income statement. What you can see is that the first half 2010 really does reflect the very low 2009 order intake. And this obviously also hurt our earnings and the EBIT due to the very low utilization of the manufacturing capacity. And I have to say this was as expected. And of course, when these things happen, it immediately has a tremendous impact.
As can be read here on the earnings going in the first half 2009 from plus-€154 million down to minus-€244, giving a negative EBIT of close to 14% versus plus-6.6% at the same time last year.
If we just look at where this is from a manufacturing and shipment perspective actually coming from, we've tried here just to give a flavor of how things actually did evolve in previous years. And as can be seen here, in Q1 and in Q2 2010, we have shipped just a little more than we actually did in the first quarter 2009, i.e., an activity level which is approximately 50% lower than the same time last year.
And this is of course hurting the earnings significantly in the first half. I guess you can see from here the variations that we've had in the last few years through the quarters, and here this first half 2010 is extremely low.
Turning to the balance sheet and the development of the balance sheet, I think it's important to underline, and I will come back a little later and talk about the net working capital. But let me just say that if we look at the equity ratio, Vestas is still standing in a pretty strong position with an equity ratio of more than 47%.
If one looked at one of those lines which have a significant difference, which is the financial liabilities going from €118 million to more than €1.1 billion, let me just say that this means that the net debt of the Vestas after the first half year's deficit and investment program is being financed through this, which basically constitutes the Eurobond that we issued earlier this year together with facilities from the European Investment Bank and the Nordic Investment Bank, and in our opinion clearly demonstrate the robust balance sheet that we do have and also one of the reasons why we maintained our CapEx program for the full year in 2010 despite obviously the very negative result that we did realize in the first half.
Turning to the net working capital, we have seen a decrease in the inventories by close to 20%, but we still believe that the inventories at Vestas are too high and we will definitely work to bring them further down. We have seen a big increase in receivables, but that is not to be interpreted as receivables coming from bills not being paid, but reflects the very high level of orders in progress that we are in the process of executing and that is giving this big variation on the actual receivables.
Prepayment from customers are also down, and there is one very important reason for this, and I will come back and talk more about the prices and terms and conditions in the market, is the fact that the larger projects with a longer time span impacts in the way that the milestone payments actually take place. And of course, also we have seen some impact from the credit crisis, but first and foremost, because of the larger projects with a longer time span impacts the prepayments by the end of the first half.
Turning into the cash flow, again, I have to repeat the story that the cash flow obviously is heavily impacted due to the very slow and low first half 2010. But again, I have to say this was as expected. And if you look at, for instance, the investment activities, Vestas is maintaining our investment activities for the full year 2010, and we of course therefore also expect as things will improve in the second half of this year, that also will have a positive impact on the cash flow going forward.
One the non-financial results, I think it's also important to highlight that the safety at Vestas as a company is being further improved. After the first six months, we are now down to 4.6 million injuries per 1 million working hour, which is an improvement of nearly 40% compared to the same time last year. And that is not just important for the safety of all of my colleagues, but definitely also a very important parameter in signing of future orders where there are significant demands in how good you are in dealing with this issue as a supplier.