bneGREEN: Vestas reins in outlook as inflation and the energy crisis continue

bneGREEN: Vestas reins in outlook as inflation and the energy crisis continue
Vestas wind turbines accounted for the most installed capacity globally in 2021 / Vestas
By by Roberta Harrington in London November 2, 2022

Wind giant Vestas has reduced its financial expectations for the year because of pressures from inflation and the energy crisis that followed Russia’s invasion of Ukraine. Vestas wind turbines accounted for the most installed capacity globally in 2021, according to the Global Wind Energy Council.

The Denmark-based manufacturer said that in Q3 of 2022, “the business environment with supply chain instability and cost inflation did not wane. Additionally, delays on project deliveries led to higher costs related to executing on customer commitments.”

It is now anticipating an operating loss for 2022, with revenue expected to range between €14.5bn ($14.3bn) and €15.5bn compared with a previous projection of €14.5bn-16.0bn. Its EBIT margin before special items – a measure of profitability – has been adjusted to approximately -5%, down from a range of -5% to 0%.

The company said that total investments excluding acquisitions of subsidiaries, joint ventures, associates and financial investments are now anticipated to amount to some €850mn, down from a previous estimate of €1,000mn.

The company recorded a bigger-than-expected operating loss for the Q3 period of €127mn despite turbine price increases. That was down from €318mn in the same quarter in 2021. Vestas reported a net loss of €147mn for Q3, compared with a year-ago profit of €116mn.

Group president & CEO Henrik Andersen said: “In the third quarter of 2022, Vestas continued to increase the average selling price of our wind energy solutions and build further momentum within offshore wind, although geo-political uncertainty and high inflation impacted execution cost and activity levels in the wind industry.”

He noted that despite the headwinds, the company achieved revenue of €3.9bn despite project delays, while its service business grew more than 30% with a “solid” EBIT margin of 24.5%, providing stability during a very challenging period. Its revenue decreased by 29% year on year, driven by project delays, the company said.

Andersen highlighted the company’s growing offshore wind momentum, with preferred supplier agreements totalling 3.8 GW across the US, United Kingdom and Poland, while onshore order intake was 1.9 GW with an average selling price of €1.06mn/MW, ensuring a high order backlog of €18.1bn.

“The energy crisis incentivises a faster transition to an energy system built on renewables, and ambitious political agreements such as the Inflation Reduction Act in USA strengthen the underlying demand for wind energy solutions, but project development and order intake remain impeded by energy market uncertainties and red tape,” he said.

The company also said that it will increase its operating earnings in 2025 by 10% by raising its turbine prices even more than it has already.

It received orders for nearly 1.9 GW of turbines between 1 July and 30 September, leaving it with an order backlog worth €18.1bn at the end of the period. The order intake has been projected to be 2,482 MW.

Longer term, the company is relatively optimistic. Chief financial officer Hans Martin Smith told Reuters: "I think it is evident that the world needs more renewable energy and I think that's what everyone is expecting.”

Notably, Vestas did not report job cuts, though analysts say it may have to do so before too long.

Western wind turbine original equipment manufacturers are struggling with thin profit margins because of cost inflation – such as for commodities like steel, logistics and labour. Also contributing to the headwinds are increasing competition from China and policy uncertainty in the wake of the energy crisis because of Moscow’s invasion of Ukraine.

A few days before Vestas reported its financials, GE had said that its renewables division’s annual losses in 2022 would reach $2 bn, and the company confirmed that it would axe 20% of onshore wind jobs because of rising costs and policy uncertainty, officials said. CEO Larry Culp said that the job cuts would occur in the next 12 months and would involve cuts at the division’s headquarters.

GE’s largest onshore wind market, the US, has experienced uncertainty as government tax credits for wind energy production have expired. This was a large part of the cause of GE's 15% y/y drop of revenue in its renewable energy division in Q3.

Rival Siemens Gamesa (SG) will report its earnings on November 10. They will be watched closely. The Spanish company has issued profit warnings and said in late September that it will axe 2,900 jobs globally because of inflation and supply chain issues. The pressures are affecting its bottom line, SG said.