Vestas Wind Systems A/S

Good morning and welcome to our presentation of our Q3 2024. Surely it's a special day with circumstances later in the US, 5th of November, Election Day. I'm sure we'll talk more about that. Can I also here just take the opportunity to thank our partners, customers, and also many of our new and old colleagues for the execution in a busy Q3 and also a very busy and packed Q4. in this year. With that, I would like to go to our key highlights for Q3 2024. So we had revenue of 5.2 billion euros. It's an increase of 19% year-on-year, driven by higher prices and higher volumes on the deliveries. We had an EBIT margin of 4.5%, higher activity and better underlying performance, improved EBIT margin by almost 3 percentage points year-on-year. The service EBIT margin ended at 16%. The service profitability reflects the ongoing scrutiny to improve the operational efficiency. We'll speak more about that later on. The order intake ended at 4.4 gigawatt. Flat order intake year on year leads to an all-time high turbine backlog of more than 28 billion euros in the quarter. Then we are ramping up manufacturing in the US and in Europe. That means also we are onboarding colleagues and ramping up is also always challenging, but we also continue to make progress in both the on and offshore. And then, of course, for the outlook 2024, revenue and EBIT margin guidance maintained with adjustments to the service EBIT as a reflection of the quarter and the total investments. We'll speak more about that in the end. I'd like then to take you through what is the current business environment we are seeing and experiencing. On the global environment, we still see raw material and transport costs being stable, of course, with regional variations to that theme. I think on the ongoing geopolitical and trade volatility, I think it almost speaks for itself because, of course, we see a number of discussions. And also in the current election, we see that being discussed. The overall inflation is overall declining, but there are still specific components that are rising or having a variable to that theme as well. On the market environment, grid investment is being discussed, also prioritized in key markets, but often building on a weaker foundation on the grid. The permitting is improving in some markets here, especially Germany and UK. But overall, the permitting, auctions and grid are still proving to be challenging factors when we see projects being up for permitting, or for that matter, through the transmission on the grid. On the project level side, Q3, we've seen some regional disruptions, continues to threaten supply chain. We had a bit of a stop and go in and around the threat of a strike in part of the U.S. harbors. But then outside that, we've actually seen a pretty stable and a good execution in Q3. Then, of course, we also continue to see the execution of the low-margin projects that are finishing by end of this year. And, of course, we welcome that. And you can also see from Q2 to Q3 our improvement in the power solution business. So with that power solution, I think heading here, Q3 is still commercial discipline maintained. So when we look at the Q3 order intake of 4.4 gigawatt, that was stable compared to last year. Good market activity driven by onshore in all regions, as well as two offshore projects, including our first offshore project in the U.S. The ASP on new orders was 1.1 million euro per megawatt in the quarter. The order backlog and power solution increased to an all-time high of 28.3 billion, up almost 7 billion compared to last year, as our energy solutions continue to have good traction with customers across our core markets, as you will be able to see here to the right. Also just once here to make a bit of a special shout out for Germany and to some extent the U.S. Often you don't see Germany due to the order size, but of course here increasing and also seeing an important part of the 700 megawatt of unannounced orders in the quarter. And it's a market where there is a real traction and a real ramp up in volume directed from the current government. With that, service in Q3 24. Clearly, the operational efficiency is high on everyone's agenda. We are scrutinizing the service business to address the cost too high. It will take time to fix, but several steps have been taken, including some organizational changes in the service business. The service order backlog increased to 35.1 billion euros, up from 32.4 billion a year ago. At the end of Q3, investors had 154 gigawatt on their active service contracts. You can see the splits to the right here. And again here, average year's contract duration is sitting at 11 years. Then on the service side, the Vestas development in Q3, so generating good order intake in Vestas development. So in Q3, Vestas development generated 324 megawatt of order intake for Vestas, including the announced Lotus Creek wind farm in Australia. Lotus Creek is the first project developed by Vestas Development in Australia to reach financial close and construction readiness. We look forward to delivering the first turbines to our customer, which is CS Energy in 2026. At the end of Q3, Vesta's pipeline of development projects amounted to 28 gigawatt, with Australia, U.S. and Brazil holding the largest opportunities. You'll see the breakdown here to the right. And as it goes without saying, as we've said also in the previous quarters, discipline on development projects is also key. with some of the macroeconomics that changed from the increasing interest. Having said that, in the key markets, any development project that gets to a permitted status is actually in very high value with our partners, which we then offer across our group of partners in the regions. With that, I'd like to go to sustainability in Q3. So the lifetime CO2 avoided by produced and shipped capacity increased by 45 million tons compared to a year ago. You can see that to the right. The carbon emissions from our own operations increased by 4,000 tons year on year due to increased activity predominantly in service, but also in the offshore service and construction. 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 I will also here mention in especially it's important for us quarter on quarter when we onboard so many new colleagues. You will see that we have now passed 33,000 colleagues globally worldwide. which is a reflection of the ramp-up that happens in both the on and offshore. So that also means arriving, working and returning safely to your families for any Vestas member here and colleague is key for us. With that finished for my section, I will pass over to Hans on the financials. Thank you, Henrik.

And we go straight to the income statement. where we can see that revenue increased 19% year-on-year, driven by the higher volumes and the higher average pricing that we have been pushing through in the last couple of years on our turbine deliveries and power solutions. Gross margin was 10.5%. That's roughly a 2.5 percentage points increase from the 8.1% we were at last year. The improvement was driven by increased activity and better underlying performance in the power solutions segment, but then slightly offset by lower profitability and service. EBIT before special items tripled to 235 million euros, up from the roughly 70 million euros we had last year, equivalent to a margin of 4.5%. This results, importantly, in a return on capital employment improvement by more than 9 percentage points. That takes us to the 2.1 that you can see over there on the table. In the power solution segment, revenue increased by 24% year-on-year, driven by higher deliveries across many markets, such as Canada, Germany, and France, but also by the higher average pricing that we are seeing on the deliveries. EBIT margin before special items improved five percentage points year-on-year to 4.2%. driven by the improved profitability, the good project execution and the benefits from the operating leverage that I also mentioned before on the activity level side. Nonetheless, in the quarter, as we have said before, profitability is still hampered by completion of low margin projects from mid 2022 and earlier. But as we've also been talking to, we expect these to be lastly completed by the end of the year. In service, revenue declined 1 percent year-on-year in Q3. Disregarding currency, revenues were on par with last year, but we are seeing lower contract activity being offset by higher transactional sales in the segment. Service generated an EBIT margin of 16 percent, which corresponds to an EBIT in absolute euro terms of 148 million euros. The service margin improved in Q3 compared to Q2, but slightly lower than expected due to higher costs in EMEA and Americas regions. that we experienced as part of the operation scrutiny of service that we initiated earlier this year and that you were also referring to earlier on your slide, Henrik. On the cash flow, the operating cash flow improved compared to last year to 89 million euros in the quarter, driven by the improved profitability that we have observed. Adjusted free cash flow amounted to minus 224, and that is also an improvement compared to last year. And importantly, when we look at the year-to-date cash flow, that amounted to minus 699, but actually that is a one billion-year improvement compared to the same period last year. This is also what you see in the table there to the right, reflected then in our net interest-bearing position, which has also improved compared to one year ago. That takes us to the net working capital, where it increased during Q3 due to a decrease in the level of custom down and milestone payments. that were then partly offset by reduction in inventories, as you can see there on the slide to the right. Generally, I would say we are looking at the usual working capital release expected in the last quarter of the year, so in a lot of ways reflects a typical way of how Vestas works. Going to the investments, we can see that they amounted to 272 million euros in Q3. We are facing ramp-up challenges in both the offshore and the onshore segment, but we also continue to make progress in our ramp-up. The 236 offshore manufacturing platform in Europe remains a considerable driver of these investments as we prepare for the first deliveries to the two projects, Hidreit and Baltic Power. Whereas in the U.S., on the onshore side, our production is increasing. We have added extra shifts that allows us to utilize a larger share of our capacity and our footprint that we have in the American market. That takes us to provisions and LPF, where we can see that the LPF continues to improve, which is a sign that our continued and increased focus on quality in recent years is working. And over time, of course, an improved LPF should also lead to lower warranty provisions. But in the quarter, we have made a specific provision for an offshore-related component at two sites, and this is the main driver for the elevated warranty cost that you can see here. Wanted cost, they amounted to 313 million euros in the quarter. That corresponds to 6% of revenue, but actually that is on par with what we had last year. That takes us to the final slide in the financial section, the capital structure, where we can see that as a combination of the better profitability that I've spoken to, as well as the cash flow, we have an improved net debt to EBITDA, That ends at 0.9 compared to the 3.6 we were at a year ago. Let me finally mention Moody's investment grade rating of BA2 that has a stable outlook. And then I give you back the remote hand, like I'm back to you.

Thank you so much. Thanks. And therefore, thanks, Hans. And therefore, over to the outlook for the year. Revenue is in the range of 16.5 to 17.5 billion euros with Q4 remaining. And the EBIT margin before special items is sitting at 4 to 5 percent, where we're also saying that the lower end is more likely with the adjustment we also hear showing on the EBIT from the service business to now be around 450 million, where we previously had 500 million when we came out of August Q2. The total investment, as Hans already mentioned, we're saying approximately 1 billion versus the previous one, which was 1.2 billion. And, of course, all of that based on the current foreign exchange rates as we see it currently. And, of course, as also looking into a busy Q4 ahead of us. With that, thank you so much. And I will pass it to the operator and, of course, the Q&A with that.