Vestas Wind Systems A/s · OMXCOP:VWS
Vestas Wind Systems A/s — FY2005 Earnings Presentation
44 slides from Vestas Wind Systems A/s's earnings presentation, Mar 29, 2006
Slide 1: Annual Report 2005
Annual Report 2005 Vestas Wind Systems A/S Copenhagen Marriott Hotel Wednesday, 29 March, 2006
Slide 2: Highlights
Highlights 2005 2006+ • Unsatisfactory EBIT -3.2% • Significantly improved • North American projects profitability on new projects • Component shortages • Continued strong market • Warranty provisions • Efficiency improvement • World market grew 40%+ initiatives gaining momentum • 52% revenue growth
Slide 3: 2005
2005
Slide 4: Actual 2005 vs. outlook
Actual 2005 vs. outlook Actual Outlook Outlook 2005 Nov. 2005 Mar. 2005 Revenue 3.58 ~ 3.4 3.2 – 3.4 (bnEUR) EBIT margin -3.2 ~ -3 ~4 (% of turnover) Investment activities 137 120 – 140 140 – 160 (mEUR) Net Working Capital 14 25 – 35 25 – 35 (% of turnover at year end) 4
Slide 5: EBIT margin: from +4 to -3.2%
EBIT margin: from +4 to -3.2% Three main factors: 1. North American projects 2. Component shortages 3. Warranty provisions Other factors include higher overhead costs and a changed sales mix. Source of disappointment mEUR Operational issues 191 Additional warranty provisions 106 5
Slide 6: 1. North American Projects
EBIT -3.2%: 1. North American Projects 8 low margin orders for North America to be completed before year-end have lead to • Significant opportunity costs from taking up production resources and components that were originally assigned to other projects • Significant direct cost overrun related to sh
Slide 7: 2. Component shortages
EBIT -3.2%: 2. Component shortages Component shortages and delays have caused significant domino effects in Vestas’ production flow Examples of domino effects: • Delayed component deliveries have reduced capacity utilisation, slowing down or even stopping production • Offshore: Due to delayed nacell
Slide 8: 3. Warranty provisions [1]
EBIT -3.2%: 3. Warranty provisions [1] • One-off product faults, EUR 38m (EoY) Fixed amount per turbine unit to cover unrelated random unscheduled service requests and component failures • Type faults, i.e. serial faults in large groups of turbines, EUR 183m (EoY) Case-by-case cost assessment of con
Slide 9: Provisions for type faults
Provisions for type faults (Annual report, page 46)
Slide 10: 3. Warranty provisions [2]
EBIT -3.2%: 3. Warranty provisions [2] • 7,900 turbines under warranty • Warranty provision key factors: • Warranty duration • Component durability • Control system performance • Turbine exposure to external factors • Our CIM Group (Continuous Improvement Management) set up in Aug. 2005 • First comp
Slide 11: 3. Warranty provisions [3]
EBIT -3.2%: 3. Warranty provisions [3] mEUR 2005 2004 Warranty provision at 1 January 148 98 Additions, acquisition of company 0 86 Exchange rate adjustments 5 -2 Provisions for the year 233 *) 87 Used warranty provision during the year -165 -121 Warranty provisions at 31 December 221 148 *) These p
Slide 12: Income Statement
Income Statement mEUR 2005 2004 *) Invoiced revenue 3,024 2,270 Work in progress 559 93 Revenue 3,583 2,363 Growth YoY 52% 43% Gross profit 84 120 Gross margin 2.4% 5.1% Operating profit, EBIT -116 -49 EBIT margin -3.2% -2.1% Profit before tax -158 -89 Profit after tax -192 -61 *) 2004 restated acco
Slide 13: Balance Sheet
Balance Sheet mEUR 2005 2004 Balance sheet total 3,085 2,881 Equity 962 1,162 Provisions 239 181 Avg. interest-bearing liabilities (net) 560 625 Net working capital 498 686 • Even with an increase in revenue of 52%, total assets only grew by 7% • Average interest-bearing liabilities declined as did
Slide 14: Development in net working capital, 2005
Development in net working capital, 2005 Change in… mEUR Inventories +128 Receivables -345 Prepayments from customers +183 Trade payables +115 Other liabilities +106 Total +187 14
Slide 15: Cash flow statement
Cash flow statement mEUR 2005 2004 Cash flow from operating activities 148 -30 Cash flow from investing activities -137 -201 Cash flow before financing activities 11 -231 Cash flow from financing activities -46 458 Change in the year in cash and cash -35 227 equivalents less current portion of bank
Slide 16: Financial ratios
Financial ratios % 2005 2004 Gross margin 2.4 5.1 EBITDA margin 0.3 5.0 EBIT margin -3.2 -2.1 ROIC -13.2 -3.8 Solvency ratio 31.2 40.3 Return on equity -18.1 -6.9 Gearing 51.2 50.1 16
Slide 17: IFRS effects
IFRS effects • IFRS is producing a much more conservative financial statement Effect per 1 January 2005 mEUR Goodwill +15 Sales value of orders in progress *) -76 Other adjustments -73 Tax effects of adjustments +45 Net effect on Equity after taxes -89 *) Vestas’ production units have changed from p
Slide 18: Deliveries 2005 by region
Deliveries 2005 by region • 3,185 MW delivered in 2005, up 14% on 2004 • Based on this figure Vestas Asia/Pacific had a market share of 28% 22% in 2005, down 6 %-points relative to 2004 Europe 51% • An additional 715 MW were North installed during 2005, but America 27% not taken over at year-end (an
Slide 19: Board resolved to strengthen Vestas' capital base
Today, the Board of Directors has resolved to strengthen Vestas’ capital base by raising the company’s share capital
Slide 20: Capital increase
Capital increase Issue Up to 10,292,930 new shares Capital Increase Up to 5.88% Subscription price Established through an accelerated book building process Timing Book opened at the announcement of the capital increase, 29 March 2006 Bookrunners Nordea Dresdner Kleinwort Wasserstein Listing First we
Slide 21: Press coverage and analyst criticism
—— =~4/7--* ESS “Ss... Vestas formand i vildrede om 2006 res fra kapitalstaerke konkt koncern mangler penge ti BusinessSondag VINDMOLLER Vestas cr under p gear-producenter. Den danske Vestas skal hente milliarder AL NIELS SANDOE i. Verdens sterte vindknolle- tome som N TET EVES _Vestas Koncernen Kri
Slide 22: Vestas is not really trustworthy
Customers, financial institutions, shareholders, analysts, press and employees all agree: VESTAS IS NOT REALLY TRUSTWORTHY
Slide 23: We do not see ourselves as victims
We do not see ourselves as victims We know that we have to improve significantly
Slide 24: Our key focus: The Will to Win
Our key focus: ‘The Will to Win’
Slide 25: The Will to Win
The Will to Win …creates accountability and transparency …has spawned a number of comprehensive initiatives – managerial as well as organisational, e.g. • Vestas’ governance structure • The Vestas Government • The Vestas Constitution • Several review boards … also determines our focus in 2006 25
Slide 26: Management focus [1] Corporate Governance
Management focus [1] Corporate Governance Challenge Initiative Result Dealing with • Redefining the way we • More transparency manage the company: • Furious growth • New governance • Clear distribution of structure responsibility • An ever changing • Three permanent environment Board committees • Ex
Slide 27: Management focus [2] Production & technology
Management focus [2] Production & technology Challenge Initiative Result Component shortage and • Closer co-operation • Yet to be seen key component exposure with suppliers A • Productive dialogue • Suppliers’ Day Reliability • New Technology R&D • Yet to be seen B focus • CIM team Warranty provisio
Slide 28: Suzlon acquires Hansen Transmissions
Suzlon acquires Hansen Transmissions A 28
Slide 29: New Technology R&D Center, Århus, Denmark
New Technology R&D Center, Århus, Denmark B • Integrated product development • 500 colleagues • State of the art facilities • Ready beginning of 2008 29
Slide 30: Constitution, customers and reporting
Constitution, customers and reporting C Constitution Projects 1. Performance Communication with Organisation Internal review and Reporting 2. Definition of expectations and performance requirements for all employees 3. Competence building programmes for employees Customer Dialogue 4. Recruitment and
Slide 31: Constitution projects matrix
C Supply Decision Relationship Between Weights Customer Decision Turbine Quality Documentation Understanding Service/ Maint Criteria and Constitution Our Business Supply Project Decision Technical Handling Service Criteria Project Leader Market Mgmt Tech Constitution Projects 1. Performance communic
Slide 32: Management focus [3] Customer relations
Management focus [3] Customer relations Challenge Initiative Result Low customer • Customer dialogue • Yet to be seen satisfaction again in • Customer advisory 2005: only 60% board formed • First meeting in Frankfurt, Dec. 05 • Feedback to all customers • New ambitious global targets for customer lo
Slide 33: Our customers are booking capacity
Our customers are booking capacity D Horizon Horizon Order: Order: 20 20 December December 2005 2005 • Long-term sustainability • Our contracts reach far into the future • We increasingly operate with a very long horizon 33
Slide 34: 2006
2006 2006
Slide 35: How to move from -3.2% in 2005 to 4-7% in 2006?
How to move from -3.2% in 2005 to 4-7% in 2006?
Slide 36: Revised pricing policy and terms and conditions
As global market leader Vestas’ revised pricing policy and terms and conditions have shifted the balance in the value chain of the wind industry
Slide 37: Investments in Wind continue to grow
Investments in Wind continue to grow “Here we have a serious problem: America is addicted to oil which is often imported from unstable parts of the world” “To change how we power our homes and offices, we will invest more in zero- emission, coal-fired plants; revolutionary solar and wind technologie
Slide 38: Firm and unconditional orders 2006
Firm and unconditional orders 2006 Asia/Pacific 20% Firm and unconditional Europe orders cover more 49% than 60% of expected North America revenue in 2006 31% Orders (in MW, end of 2005) for delivery in 2006, by region 38
Slide 39: Major EBIT factors for Vestas
Major EBIT factors for Vestas 2005 2006 Prices, terms and conditions ? 9 Execution risk ? (9) Component shortages ? ? Warranty costs ? ? Ready to deal with demand ? 9 Patent rights - ? 39
Slide 40: Outlook for FY 2006
Outlook for FY 2006 2006 2005 Revenue 3.6 - 3.8 3.58 (bnEUR) EBIT margin 4–7 -3.2 (% of revenue) Investment activities 160 – 180 137 (mEUR) Net Working Capital 20 – 25 14 (% of revenue at year end) 40
Slide 41: Wide EBIT range
Wide EBIT range • If shortages • If components persist are delivered as • If the CIM team planned doesn’t identify • Implementation and implement of CIM as the right solutions planned EBIT margin 2006 2% 3% 4% 5% 6% 7% 8% 9% 41
Slide 42: Vestas in a nutshell, 2006
Vestas in a nutshell, 2006 • Overhead costs are locked in for 2006, due to the very strong market • Revenue will first and foremost be driven by the manufacturing flow Conclusion for Vestas’ EBIT uncertainty in 2006: • If we receive our supplies and find technical solutions as planned, we’re OK • If
Slide 43: The Will to Win: Objectives for 2008
The Will to Win Objectives for 2008: 1. EBIT-margin is first priority • EBIT-margin of at least 10% 2. Net Working Capital is second priority • Net Working Capital at year end 20-25% of turnover 3. Market share is third priority • A global market share of 35% measured in MW installed 43
Slide 44: Q & A
Q&A Wind, Oil & Gas 44