This week: Interim financial report - second quarter and first half year 2012

Vestas generated revenue of EUR 1,611m in the second quarter of 2012 – an increase of 15 per cent to the year-earlier period. EBIT before special items declined by 48 per cent to EUR 40m. The EBIT margin before special items was 2.5 per cent – an improvement of 21 percentage points compared to the loss-making first quarter 2012. EBIT after special items was EUR 18m. The free cash flow decreased to EUR (338)m from EUR (63)m in the second quarter of 2011.For the first half of 2012, the free cash flow was EUR 139m lower than in the first half of 2011. The net debt at 30 June 2012 amounted to EUR 1,147m; an increase of 7 per cent compared to the end of June 2011. The intake of firm and unconditional orders was 945 MW in the second quarter of 2012 and the value of the backlog of firm and unconditional orders amounted to EUR 9.6bn at 30 June 2012. In addition to the turbine order backlog, Vestas had service agreements with contractual future revenue of EUR 4.8bn at the end of June 2012, and thus the value of the combined backlog of turbine orders and service agreements stood at EUR 14.4bn – the highest level ever recorded. The high safety level at Vestas’ workplaces was maintained and the share of renewable energy increased to 52 per cent.

Vestas retains its full-year guidance of an EBIT margin of 0-4 per cent before special items, revenue of EUR 6,500-8,000m and a positive free cash flow. However among other things due to a lower order intake in the first half year and delays of grid connections in China, shipments are now expected to amount to approx 6.3 GW against the previous expectation of approx 7 GW. Investments are now expected to be EUR 450m against the previous guidance of EUR 550m. Due to a lower cost base, expectations for the service EBIT margin before allocation of Group costs are raised to 17 per cent.

In order to make sure that Vestas will be profitable with an expected manufacturing level (shipments) of around 5 GW in 2013, Vestas now intensifies the adjustment of the organisation. Consequently, Vestas now expects the number of employees at year-end to be around 19,000 against the previous guidance of 20,400. This will contribute to a fixed cost reduction of more than EUR 250m with full effect as from the end of 2012. As a consequence of the intensified redundancy plan, special items are now expected to amount to EUR 75-125m.

Vestas has initiated a process to identify outsourcing opportunities and also seeks to involve its suppliers in larger parts of the supply chain than is the case today. The intention is to further increase the manufacturing flexibility and to reduce Vestas’ capital requirement.

Vestas expects to realise savings of approx EUR 30m (EBIT impact) in 2012 related to the ongoing product cost-out program. Savings will be realised late in the year and Vestas expects the savings to increase significantly in 2013.

As announced on 31 July 2012, Vestas has agreed with its lenders to defer the half-year 2012 testing of the financial covenants contained in Vestas’ banking facilities. Furthermore, the lenders have allowed drawings, which in the opinion of Vestas are sufficient for the continued operation of Vestas on usual terms as the company expects to test on normal terms in the future.