Vestas Wind Systems ADR (VWDRY.PK)

Q2 2012 Earnings Conference Call

August 22, 2012 4:00 AM ET


Ditlev Engel – President and CEO

Dag Andresen – CFO


Patrik Setterberg – Nordea Markets

Andreas Willi – JPMorgan

Patrick Hummel – UBS

Rupesh Madlani – Barclays Capital

Daniel Patterson – SEB Enskilda

Arnaud Brossard – Exane BNP Paribas

Claus Almer – Carnegie

Håkon Levy – DNB Markets

Martin Prozesky – Sanford C. Bernstein

Allen Wells – Morgan Stanley

Sean Mcloughlin – HSBC

Archie Fraser – Redburn Partners

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Kasper Larsen – Danske Markets Equities

Klaus Kehl – Nykredit Markets

Fasial Ahmad – Handelsbanken


Ditlev Engel

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Good morning and welcome to this presentation for Vestas Wind Systems’ First Half 2012 and the Second Quarter Results for this year. We have decided to label this presentation, Intensifying Preparation for 2013. And I will come back a little later on and explain in detail, why we have decided exactly for this headline. The agenda for today is to take you through this preparation for 2013. Then my new colleague, Dag Andresen, our new CFO, will take you through the financials, and I’ll come back and give you some perspectives on the order intake situation as well as the outlook before we go to the regular Q&A session, where both Dag and I will be participating.

If we start to drill in to the year 2013 and what we have announced this morning, I think it’s important to be aware of what is exactly that we are looking at here in the year 2012 and of course also going into 2013. Back in November 2011, we used exactly these words, that we expect 2012 to be tough and that 2013 could be even tougher. We put a plan in place and that is the plan that we have been working on ever since and which we are now intensifying which I’ll come back to in a minute why we are doing just that.

We also mentioned back at that time that the cost-out on the products was very essential for us and we are today giving some headlines of what is exactly that we have been looking for in terms of the product cost-out which is on schedule. And you’re seeing that EUR30 million will be contributing positively for the EBIT this year, thanks to these product cost-out efforts and even more, it will benefit us in the year 2013.

We are also today announcing that we intensify our plan for the layoff of the organization unfortunately, which means that we are ahead of the schedule that we laid back in November ‘11 and meaning at that time we said that we will in the fourth quarter of this year have a run rate that would be EUR150 million lower going into 2013 compared to going into 2012.

This we are now as I said intensifying because we believe that 2013 as previously mentioned is going to be even tougher and therefore this target is now raised from EUR150 million to EUR250 million going into next year. It’s also important to say that the operational excellence and that just means how the turbines are performing, safety, performance, installation, overall business service, et cetera is going very well.

Also I would like to say that what gave us a lot of challenges in the second half of 2011 and in the beginning of this year, mainly running in new technology is no longer the challenge that it was, which also means that we of course are being burdened from these very disappointing results from the second half of ‘11 and in the first quarter of 2012, no doubt about that. But again looking in here to the second half of 2012, this is no longer new technology for Vestas, this is actually now a known technology throughout the organization.

I want to look at the years ‘12 and ‘13 as one. Just as we did back in November 2011, where we mentioned that we were going to put Vestas into a new organization and had a lot of additional efforts in order to make Vestas a more scalable organization, a more flexible organization but also one where we in the future not only focus on installation of new turbines but then we have two revenue streams, one coming from the traditional sale of turbines and one coming from the sales of services.

As you can see when I speak about an even tougher 2013 then that is very much related to the challenges there are in the new installation market, because if you just compare this to the service, you will actually see that here in the second quarter of 2012, the service revenues have grown 34% compared to Q2 last year, and that is the balance that we have to strike going forward with a more leaner and more agile Vestas Group, changing the organizational structure at the same time which we are in the process of doing.

In January as I said – we have said that 2,335 people would have to leave us during 2012. We are ahead of this plan now and we are therefore further intensifying it by an additional 1,400 to be cut through the remainder of this year and I’ll come back to that later on. We are preparing and putting some lights on, what it is that we are looking into in 2013. We are preparing for 5 gigawatts. 5 gigawatts of new installation activity is significantly down from what we saw in 2012 already now, but also for the remainder of the year.

And this balance is the once that we have had to strike being very busy in 2012 while at the same time comparing for a significant slowdown in 2013 which we now expect to be around 5 gigawatts and therefore these balances are the ones that we’ve had to strike during this year and also preparing for next year. Looking at the split of the reduction of employees. As I said, we expect to be around 19,000 by the end of the year and you have here on the slide, the split between salaried and hourly-paid.

The reduction is going to take place across Vestas and we expect approximately 55% of the layoffs to take place in Europe, 25% in Asia and 20% in Americas and this is again something where we have been looking at, how do we strike the balance between a very busy 2012 and of course preparing for even tougher 2013. If we look throughout the organization, I would also like to say that having the kind of increase in activity that we have seen in the first half 2012 has in my mind been extremely impressive by the organization knowing that these were the challenges were ahead of us and I would like to use opportunity to thank everybody within Vestas watching this that it has been really, really impressive the way people have handled it and are handling it right now because we still have a lot to do here in the second half of 2012.

The additional redundancies which actually correlates to 58% are expected to take place here from the second half of the year with a majority taking place next month in September which again means as I said the total workforce will go down by 3,700 by the end of this year. Talking a little bit about the new organization that was put in place earlier in this year and which is an very important part of driving this process for more leaner and scalable Vestas.

We have – since we met in Q1, had the pleasure of announcing two new members of the executive management team, Jean-Marc Lechêne, responsible as COO for Manufacturing and Dag Andresen, taking over as the CFO, coming in which of course is a very important strengthening of many of the activities that we are in the process of undertaking. On this slide, you can see some examples of what it is that is going on inside the organization at the moment within each of the areas in order to prepare Vestas for these tougher challenges on the turbines market in 2013 while at the same time ensuring that we get a better balance between installation of new turbines and our service business.

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