Vestas Wind Systems A/S

Good morning and welcome to our full presentation of our Q2 and also first half reporting for 2024. Clearly, you've seen it from Monday, the negative quarter for service, but also with a solid progress in most other areas. And I'm sure we will talk more about all of these topics in much more details in the coming good hour. I'm also sure here that we will look at the trajectory for the full year. And with that, I would like you to take us to the key highlights for Q2 and to some extent first half. Key highlights for Q2, revenue of 3.3 billion euros. That is a revenue decrease of 4% year on year, affected negatively from the service and offset by higher delivery ASP from the power solution. Service impacted by the adjustment to the planned cost, service EBIT negative of 107 million in Q2 due to the approximately 300 million in negative adjustment and also there with no cash flow effect. Underlying earnings progressing as expected. We've seen the turnaround in power solution is on track and has improved EBIT margin almost 8 percentage point year on year from the Q2 2023. The order intake was 3.6 gigawatt. The order intake grew, therefore 54% year-on-year, driven mainly by onshore projects in both Europe and Asia-Pacific. We'll talk more about that in a minute. See a strong cash flow for the first half, adjusted free cash flow of half a billion euros, drives leverage down to 0.7, net interest-bearing debt to EBITDA. And then we narrowed the outlook, the turnover expected now between 16.5, 17.5, and an EBIT margin of 4% to 5% for the full year, and we will talk more about the outlook in details in the end. So with that, if we go to the business environment first, I will say the first two sections, the global environment and the market environment, about the same. So we've seen that the global environment still contains some of the geopolitical volatility. I will also say we see that in a number of markets where the overall inflation are declining, but specific components rising and still weight and salary increasing. are sticky in certain local markets, both in Europe, America, and to some extent in Australia. When we look at the market environment, I think the grid investment is getting prioritized in key markets. We, of course, welcome that. We also can see that they're upgrading in general, and we can talk more about that in details of examples. I think here, a welcome to also Germany and UK. Overall, permitting are progressing. The auctions We can see that also with the budget increase from the UK. There are really here political commitments to start getting this moving into concrete actions. I think for us, and both Hans and I will talk more about that at the project level, some of the supply chain normalization we have been speaking to are now also influenced with some of the regional disruptions. We know the Red Sea, which I'm sure some will have comments or questions to. But for us here, the main part is the second one where we see that the project executions are taking place as we planned and we are working patiently through the low order margins back from prior to first half of 2022. Really important thing here is that we can see our execution have very little differences to what we planned to do, which is also one of the material contributions to the progress and the progression in power solutions But of course, we are seeing a better ASP also to be executed. So with that, let me go to power solutions and give you the highlights of that. So good order intake across our markets. The order intake ended at 3.6 gigawatt, up 54% compared to the last year. There's a good activity driven by onshore projects in both Europe and Asia Pacific, as well as the North Sea cluster offshore project with RWE. The largest onshore project in the quarter was the 577 megawatt Golden Plains Stage 2 wind farm in Australia, potentially making it a revival of a very important market that is also finding itself in the middle of an auction process. I'll also here point to the Golden Plains one was an order intake back in 22. And it also just document the model that is firmly with that the best way of getting the next project done or in the order books is executing well on the first project or the existing projects. And at least with this customer and Tag Energy, we are well ahead in the Golden Plains one, which is a project approximately an hour and a half outside Melbourne. In the quarter, the ASP increased to Euro 1.21 Euro per megawatt in Q2. Of course, that's helped by mixed effects from Scope with a higher share of EPC orders in the quarter and a continued very good commercial discipline. Also, their highlights go back and see the first order coming in in Golden Plains. There you will also see an ASP that was significantly influenced by that in the quarter in 2022. So to the right, you will see the order intake in onshore and offshore, and you will see the specific offshore order here with the 660 megawatt and below the development in ASP. With that, I'll go to the service. And service remains a strong business area, despite the question. I'm sure we are raised to our own announcement from Monday. So if we look at the highlights, the service order backlog increased to almost 35 billion from 32 billion a year ago. The inflation indexation remains a key mechanism to protect backlog profitability. However, adjustments to planned costs impact current profitability. The revision has no significant effect on the service backlog nor the cash flow. Enhanced focus on the operational excellence and cost out initiatives to mitigate higher operational costs. We'll talk more about that. And at the end of Q2, Vestas had 151 gigawatt under active service contracts. You'll see the breakdown to the right. Again, the backlog of 35 billion. And again, the average contract duration of 11 years on average in more than 80 countries. And then you'll see the breakdown per region in below. Then I'll go to the development business. And again here, the Mississippi Wind Farm Commission with Amazon as a main off-taker. And I will say here that's a heading, but the other heading that is still in the development business is quality over quantity, because it is about getting the quality into the development projects right now, which is also the underlying reason why you see a new secure pipeline hoovering around zero. In Q2, Vestas Development commissioned the Mississippi's U.S. first-ever wind project, the 185-megawatt Delta wind project. Amazon will purchase most of the renewable electricity generated to power its nearby operations. The Vestas Development experiences strong political support for new renewable energy projects, but faster permitting processes and new grid investments remain bottlenecks. There are still queues on some of the grid projects in and around our key markets in Americas and in EMEA. At the end of Q2 2024, Vestas' pipeline of development projects amounted to 29 gigawatt with Australia. US and Spain being the countries with the largest project pipeline. You will see the breakdown to the right again, and you will also see the breakdown of development pipeline in the regions attached to it. With that, I'll go to the sustainability overview for Q2. And again, here in the quarter, we've seen a lifetime CO2 avoided by product and shipped capacity increased by 11 million tons compared to a year ago. The carbon emission from our own operations decreased by 7,000 tons year-on-year due to the lower offshore activity leading to a reduced fuel usage. This is something we will start talking more to because, as you can see, when we are measuring this in approximately 100,000 tons of CO2 per quarter, we only need one or two project activities to in reality materially influence this number. So we will talk to it and we will also talk to it as we start ramping up some of the offshore construction when we look towards 25 and 26 beyond. The number of recordable injuries per million working hours declined to 2.8. We tirelessly work to improve our safety performance across our entire value chain. And of course, this one is we ended up happy with until we are fast approaching zero. With that, I will hand over to Hans for a walkthrough of the financials.

Thank you so much, Henrik. And we turn to the income statement first, where we can see that revenue increased 4% year on year, affected, of course, by the adjustment to the planned cost and service, but also by lower volumes delivered. But importantly, this was almost fully offset by the higher average prices that we had on turbine deliveries and power solutions, which is also indicating, as it says here on the slide, that the underlying business continues to improve in many ways. Cross-profit was 156 million euros, equivalent to a 4.7% margin, again negatively affected by the service adjustment. However, the underlying power solutions business, as I said before, actually continues to perform better and better. We'll come back to that on the next slide. EBIT margin before special items was minus 5.6%, and disregarding the effect of the planned cost adjustments in service, the service EBIT margin would have been positive. As I said, we are seeing that profitability is significantly improved in the power solution segment, revenue increased by 4% year-on-year, as we are seeing that the higher pricing that we have achieved on our deliveries can more than offset the declining volumes that are being delivered. EBIT margin before special items was sitting at around 0.7%. That's a substantial increase, almost 8 percentage points compared to last year. And I think it's good to highlight here that this really evidences that the profitability is improving and that our commercial discipline sticks and that we continue to see that this division is getting into better and better shape. Nonetheless, I would also like to point to the fact that also in this quarter, profitability remains hampered by execution and completion of some of the low margin projects that we took in before mid-year 2022. And as you've said before, and I would like to confirm that also again, we should be largely through this when we get to the end of this year. That takes us to the service overview, and there's effectively no change to the slide here compared to the one that we presented earlier in the week. And we can see here how the adjustments to plan cost impact the profitability. Service generated a negative EBIT of €107 million as a consequence of this, and, again, this is due to the percentage of completion method we're using, and, of course, that affects EBIT in the quarter. The adjustment itself had a negative accounting effect of approximately 300 million euros or 312. And I should also stress that there is no cash flow effect in the quarter from this adjustment. And disregarding this, the earnings were pretty much flat year on year. Service revenue declined 26%, and again, this is driven also by this adjustment, and I should highlight here as a last point that transactional sales were a bit up in the quarter and that we had currency headwinds of 1%. In the quarter, I would say we had a quite strong cash flow, where the operating cash flow stood at 830 million euros. This is, I would say, a quite considerable improvement compared to last year of 783 million euros, so basically going from zero to 800. This was driven by a reduction in the net working capital, but also, of course, by the improved underlying profitability that we're seeing. The adjusted free cash flow then stood at around half a billion euros. This is also a significant improvement compared to last year. So, all in all, I would say a strong cash flow in the quarter is definitely what we have observed. I mentioned briefly working capital before, and here we can see the composition of how that has played out. Networking capital did decrease in Q2 due to a decrease in the contract assets driven by milestones from customers, down on milestone payments in the power solution segment, partially offset then by inventories that are a signal that we are preparing for a high activity level in the remainder of the year. So, I should say, it is a development that reflects a very busy second half of the year, but at the same time, as we also saw in the cash flow, I think well managed in a way that we can be quite pleased about. Turning to the investments, I'd like to highlight here that we are preparing still for the ramp-up of the production in both Europe and the U.S., and of course, in Europe, the main thing that we're investing in is the 236 offshore manufacturing platform, preparing for the first deliveries that we have next year in 2025. But I'd also like to highlight that we are also investing into our on-shore American footprint, where we are ramping up production and where we are expecting for deliveries to come up in the coming quarters. And all in all, that takes us to the investment level of the 269 that you can see here on the slide to the right-hand side. That takes us to the provisions and to the LPF overview that you see here, where we can see that the warranty costs are improving further, but at the same time, we are still seeing an LPF sitting at an unsatisfactory level. It is improving, though, and there are concerted efforts going into addressing to taking this down. We are seeing that some of these efforts are paying off, but I would also Again, point to the fact that we are still at a level that we are not happy about when you look at the graph here to the right-hand side. Wanted cost stood at 141 million euros in the quarter, which corresponds to 4.3 percent of revenue, and that compares to a level of around 5 percent a year ago. That takes us to the last page here in the financial section, where we can see that our financial leverage is back within targets. And of course, that is driven by a combination of the profitability improvements that I've spoken to already, as well as the cash flow developments that are also coming through in a quite good way. All in all, that gives us a net debt to EBITDA ratio of 0.7, which compares, I would say, quite favorably to the 4.5 level we were at a year ago. So I definitely say it's good to see now that we are coming back to movements and levels that are, let's say, less dramatic than what was the case if you go back three, four quarters. So good development there. Finally, let me point to the rating we have for Moody's, BA2, with a stable outlook. And that brings us back to you, Henrik, for the outlook.

Thank you so much, Hans. And let me take you through to the outlook. No changes to the slide you saw on Monday, for sure. So revenue is 16.5 to 17.5 billion euros. And the EBIT margin before special items sits for the group between 4% and 5% versus previously 4% to 6%. And the EBIT of the service business around 500 million. considering the 312 million adjustment in the quarter from previous 800 to 880. Total investment sits around 1.2 billion euros. And all of this, of course, is based on the current foreign exchange rates for the remainder part of the year. So with that, operator, I just want to thank everyone on the call and also for some of the many discussions that have been over the last 48 hours. And I'm sure we will look forward to see many of continue some of those over the coming days. So over to you, operator, and Q&A.