Vestas Wind Systems A/S

Good morning and welcome to this release of our Q1 2024. A quarter that is the continuation from our 2023 progress overall. And thanks also here again to our stakeholders across from support throughout the first quarter of this year and therefore keeping momentum towards the remaining part of 2024. So with that, let's go to the key highlights of the first quarter. So we had a revenue of 2.7 billion. It's a small decline of 5% year-on-year, driven by lower activity in power solutions, partly offset by a 12% growth in the service business. The EBIT margin ended at minus 2.5%. Disregarding the sales of the technology in Q1 2023, EBIT improved year-on-year due to the higher project profitability, as we will talk more about. The order intake in Q1 was 2.3 GW. The order intake declined by 30% year-on-year, partly also due to the very strong finish in 2023 in Q4. Solid capital structure. We improved earnings and they are the main driver for a leverage of 1.1 times net debt to EBITDA compared to 5.8 times a year ago. And Hans will talk much more about that. And the investors continues to lead the industry through commercial discipline. Vestas maintains the leading position in the global market, and we will definitely also talk more about that. So with that, let's have a look at how we see the business environment currently. So in the business environment we talk about here, the industry maturity, also how we act through the core circles of influence to power the energy transition. So if we look at the global environment first, I think it's obvious that raw materials, transport costs are either trending down or remaining pretty stable. That also said, we also see that the underlying wage inflation are remaining high and becomes more and more sticky. Geopolitical volatility, I think it goes without saying that the world is having geopolitical uncertainties. And to some extent, the other side of that coin is that it also highlights the need for keeping the development of energy and energy capacity and not least energy independence for many parts of countries around the world. Inflation and interest rates are still high, and we sort of think that's a negative for some of the projects that have been in the backlog or, for that matter, in the project priority. But at the same time, it also increases everyone to remain more focused, more disciplined in prioritizing the right projects. If we then look at our market environment, I think the grid investment prioritized in key markets, we see more and more of that positively. We also see that the permitting are improving in certain markets and therefore it's only right to reach out and give praise when praise is due. And Germany, UK on onshore and not least also the US are picking up and picking up fast. But overall else, I will say still we see permitting, we see auctions, and we see grid are still being challenged across our five regions across the world. When we get to project level, I think positively here, we will say that the supply chain disruption are improving more or less the same as what we also finished in 23. So we see a little disruption, which is positive. Yes, we have had some Red Sea, but through great partnership collaboration, we are able to mitigate some of that and work through it. So if it's what we see now, it shouldn't affect the year. But again, what we also say here, positively on the site and the execution in factories right now, we really benefit of that. Then when we see also for the rest of 24, we have continued the execution of our low-margin projects. Those are the ones related back prior to first half of 22. And of course, those low-margin projects will be concluded by the end of this year in 2024. We are now also at the time of the year where we will look at how does it look for the market shares in 2023. And there we will say Vestas continues to lead the industry. If we look at it, the global installation decreased slightly from 40 gigawatts in 2023 from 41 gigawatts in 2022. Vestas maintains a leading position. You'll see we're slightly up from 28% to 29% in the chart to the right. And here I will say probably a little bit against expectations. We didn't see the installation increase in a year like 2023, where we even had a year to plan for it. I think also here industry maturity is improving. We see developers, we see turbine suppliers are being more selective and focusing on building high quality value creating projects. I think that is a very, very important scenario that we combine those many factors and therefore also work closely with the off-takers and governments locally to get capacity and the energy transition running at a higher pace. I will also say here, still we see from time to time certain governments taking short-term opportunistic choices, especially in auction design and others, but I'm sure we'll get many opportunities to have those discussions in the coming quarters and in the coming years. With that, back to the business and how we look in power solution. So Q1 2024 was a lower order intake year on year due to a very strong finish to 2023. The order intake in the 2.3 gigawatt, that's down 30% compared to last year in Q1. The main reason for the decline is lower order intake in Americas, where Q1 2023 was impacted by the 1.3 gigawatt deal with Casas Desventos in Brazil, and the fact that Vestas has secured very strong order intake in the U.S. in Q4 2023. A quick comment here is that we ended in 2.3 gigawatts, but we also said we ended at 8.2 gigawatts in Q4 last year, which sets a little bit the tone of how two quarters deviate from ending 31st of December. The largest order in this quarter was a 554-megawatt order in the U.S., which again will employ Vesta's latest technology high-capacity factor turbine, the 4.5-megawatt V163. The total ASP was stable around 0.97 million euro per megawatt in Q1 compared to 1 million euro per megawatt in the prior quarter. Quite pleased with the stable of ASP and quite pleased also in this order of magnitude in this quarter considering both where and also the scope of the order intake. With that go-to service, good start of the year continued into 2024 with high customer satisfaction. So the service order backlog increased to 34 billion from 31 billion a year ago. The inflation indexation remains a vital mechanism to protect backlog profitability and also keep running the business in the right way. We had a good start of the year with high customer satisfaction. NPS increased to 58 and continued under very high activity levels across our major markets. We also in this quarter had a regional validation of contract data that showed some premature inclusion of not yet active contract e.g. projects at start of construction rather than start of service. The validation led to a 2% reduction in gigawatt under service and has no effect on customers, employees or the value of the service backlog. Of course, we apologize for that, but I think here a couple of our business units had been too quickly affected. on that bottom so therefore at the end of q1 business had 149 gigawatt under active service contracts which i'm sure we will also see in the breakdown off to the right we have a backlog of 34.4 billion in service of which 29.6 comes from onshore we had 149 gigawatts under active service contracts of which 142 is coming from onshore and again average years of contract duration still above 11 years, which is, of course, very well done by the service colleagues around the world. With that short view into Vestas development, I will say a rather quiet quarter after a very busy end of last year, and again, an enormous focus on high-quality projects with a high discipline, considering also the macroeconomics of interest rates and inflation around. In Q1 2024, Vesta's pipeline of development projects amounted to 30 gigawatts, with Australia, US and Brazil being the countries with the largest project pipeline. Early stage projects of approximately one gigawatt exited development pipeline in Q1. This was offset by one gigawatt of new projects during the quarter, which also means that when we look at the total project pipeline, remain stable at 30 gigawatt. We had zero megawatt in order intake generated, not unusual for a first quarter where people are planning throughout the year. And then we saw a new secure pipeline of approximately a gigabyte as mentioned. You will see the breakdown between the regions in below. Then to sustainability for Q1 2024, Vestas remains the most sustainable energy company in the world. And if we then look at the major KPIs we show you every quarter, the lifetime CO2 avoided by produced and shipped capacity decreased by 2 million tons from Q1 2023 due to lower produced and shipped turbines in the quarter. Carbon emission from our own operations increased by 12% as we saw higher activity levels in both offshore service and offshore construction, leading to increased fuel usage. Just wants to point you here that when you look at those graph, on an LCM basis, this represents 108,000 tons of CO2, which is not materially considering and comparing up against the scope three. So scope one and two for Vestas is 108,000 tons. We're working diligently with it. But I think the much more important is our attention into the scope three, which represent 99% of actually the carbon emission of Vestas. When we then look at the safety in the end, number of recordable injuries per million working hours declined 9% compared to last year. Always deviations, this is in global average. Of course, we are pleased to see it drops 9% to 2.9. But again, with a number like this, we are never satisfied at the level we are at. So therefore, we still have a view and attention to arriving, working, and returning safely from Vestas. And with that, I would like to pass over to Hans for the financials.

Thank you, Henrik. And as usual, we start with the income statement, where I'm pleased to say that our underlying margins, they do continue to improve. Revenues decreased 5% year-on-year, roughly 150 million euros. This was driven by lower delivery volumes, but offset by higher prices on turbine deliveries and also by growth in the service segment. Despite those lower revenues, gross profit actually increased by 30 percent to 244 million euros. In other words, we had a 2.5 percentage points improvement there, showcasing really, I think, our commitment to continue to put value over volume. EBIT margin before special items was minus 2.5%. This was in part due to seasonality in a slow first quarter, which resulted in low fixed cost absorption as a consequence of that. Return on capital employed improved to 1.6%, as we see that the earnings recovery continues to move on. Taking a bit into the power solution segment then, we can see here that our revenues decreased by 12% year-on-year, primarily driven by lower delivery volumes in the EMEA and Americas region, and specifically we had quite low deliveries in the U.S. in the quarter. This was then offset by higher average pricing. EBIT margin before special items were negative 9.5 percent, but actually up 0.4 percentage points year-on-year when you disregard the income we had from the sale of technology, our converter and controls business, that was carried out back in Q1 2023. Importantly, as I said before also, our profitability continues at steady improvement, but it is held back by execution and the completion of the low-margin projects that you also mentioned before, Henrik, that were taken in particular before mid-year 2022. These should be largely completed when we get to the end of the year, and we'll then be starting out 2025 in what you could argue would be a more normalized type of situation. Turning to service, we see growth in both revenue and earnings. Service generated an EBIT of 192 million euros, which corresponds to approximately 5% earnings growth. The improvement was driven by higher contract activity, inflation and inflation, but also by a slight increase in transactional sales. All of this then offset a bit by currency headwinds of about 2%. That takes us to the net working capital, where it increased in Q1, driven by an increase in inventory levels, high levels of supply payments in the quarter, but partly offset by the down in milestone payments that we have seen in the power solution segment. I think it's fair to say that net working capital reflects the typical seasonality that we have in our business, as we build inventory for high activity levels in the second half of the year. So, in that sense, the inventory levels you're looking at here, for instance, or the development in the inventory is something that I think in terms of level of direction that we've also seen in prior years here in Vestas. That takes us to the cash flow statement, where we had an operating cash flow of minus 755 million euros in the quarter, actually an improvement compared to last year. The improvement was driven mainly by better underlying profitability, but also by less of a drag, of course, from the net working capital built that we had in the quarter when you compare to last year. Adjusted free cash flow in the quarter was minus 907 million euros, which is an improvement compared to Q1 last year. Again, mainly driven by the better underlying profitability that we have had. Investments totaled 198 million euros, and I would like to highlight here that we, of course, continue to invest into our V236 offshore manufacturing footprint, in particular in Poland, where our nacelles facility that we are currently building is planned to start operating in early 2025. We've also announced our blades facility there, which is expected to be operating, come into play from 2026. But allow me to also highlight that we are also investing into onshore manufacturing footprint in the U.S., where the order situation, of course, and the good commercial traction that we have observed has made us go into those types of investment because, of course, we see that as something that is going to provide some value for us. That takes us to provisions in LPF, where on the LPF, whilst it is still at an unsatisfactory level, I can say also that we continue to see that it improves in Q1 2024. That's what you can see there to the right-hand side. Warranty cost amounted to 121 million euros and a quarter, equivalent to 4.5 percent of revenue. This is down from the 5.3 percent that we had in the full year last year. Finally, turning to the capital structure slide that we always have at the end, I'm pleased to see also, and you referred to that already, Henrik, in one of the prior slides, that our improved financial results are leading to a lower multiply of 1.1. compared to the 5.8 that we were at last year. Back then, we also said that this, say, expected improvement would be a function of our continued journey back to higher profitability. But of course, it's nice to see now also that the numbers are also leading exactly to what it is that we were talking about back then. As a final comment, let me highlight that we have an investment grade rating of BA.2 from Moody's with a stable outlook. And speaking of outlook, back to you again, Henrik.

Thank you so much, Hans. And as we also said here, outlook for 2024 year and Q1 has started as we largely expected it to do. So therefore, revenue for the full year expected 16 to 18 billion euros. The EBIT margin before special items, 4% to 6% services expected to generate an EBIT before special items of 800 to 880 million. And then we expect to have a total investment of around 1.2 billion euros, as you can also follow from Q1. Else, as we also discussed this year, 2024, will be not linear between the quarters, as you can see, but we are quite pleased with the start of the year and also the remaining three quarters we are looking into. So with that, thank you so much for listening in, and I will hereby open up for the Q&A.