Vestas Wind Systems A/S

Good morning to everyone and welcome to our presentation of full year 2024. And let me, before we go further, just extend a heartfelt thank you to our partners, our customers, shareholders, and not least outstanding colleagues for a very strong end to 2024 and a very strong execution also of a very successful Q4 in 2024. It is remarkable just to put it in perspective that Q4, just on top of 6 billion euros, is as big as Vestas was back in 2013. And also Q4 is the best quarter we have had since 2017 as a single quarter. With that, let's go to the key highlights. So the key highlights for the full year 2024, we ended with a revenue of 17.3 billion euros and an EBIT margin of 4.3%. Vestas achieved its outlook for the year and continued the positive trajectory in 2024. The service EBIT of, I'm sorry, here we just once slow in the slides, but the service EBIT of 448 million ended the year. Rising costs caused a challenging year for service, but the scrutiny is now complete for the business and a recovery plan is in place and we are being executed and executing on it. The order intake of 17 gigawatts gave a 19 billion euro add in value of the order intake. That is a record year in terms of order intake, in terms of value, with a high ASP and strong momentum in both the onshore and the offshore. We see continuous ramp-up in the US onshore and in Europe, particularly in offshore. So the manufacturing ramp-up challenges are driving additional costs as we prepare to deliver on a record order backlog, especially in the onshore US and in offshore. We also here mention returning value to our shareholders as a thanks for the loyalty of the last years. So we propose a dividend of 0.55 per share for the AGM in April, and we will initiate share buyback of 100 million euro with immediate effect, as you will see from the announcement. We'll also go through the outlook 2025. The revenue is expected between 18 to 20 billion euros. EBIT margin before special items expected in the range of 4 to 7% and more details to come. With that, let's go to the update of the business environment. I think for the business environment, one of the headings that are very important to remember these days is when the entity is still key to the affordability, security and sustainability amidst the geopolitical uncertainty. best illustrated in the chart or the figure below to the right, where we also see that the affordability in any comparison, the levelized cost of energy of wind is competitive and in most cases the lowest when you see also establishing new energy assets for 30 years. We will still remain fully committed to our energy sustainability journey, and the world needs more of that. So how do we talk about the greenhouse gas avoided? And not least, how do we make sure that the energy assets you are building remain yours and independent for the lifetime, 30 years of it? With that, when we look at the global environment, goes without saying, raw materials and transport costs are mainly stable across our markets. When we look at the ongoing geopolitical and trade volatility, I am sure we will have a question or two, but it is, of course, actual disgust also at Vestas these days. The overall inflation is stabilizing, and I think one very important takeaway here is that the indexes are now converging, and we've seen that. We've seen, for instance, in some of the wage agreements now in Central Europe, that they are settling in around 2.5% increase on average over the coming two years, which is very much in line with the overall public inflation as well. When we look at the market environment, I think the grid investment is a priority in most key markets. It's also the one that are being discussed most intensively. When we talk about the permitting, when we talk about permitting improving in some markets, mentioning here Germany, UK, US, but overall permitting auctions and market design is still challenging. Denmark delivered one of those examples that are not to be followed, and of course they are now trying to reset how the next auction regime will be introduced. I think when it comes to the wind energy, it again shows its strength, both in terms of the affordability, security and sustainability. And that, of course, is one thing we take away also from 2024. When we look at the project level, the regional disruption continues to threaten supply chain. We've seen that, seen also access ships supply chain. But on the other hand, our low margin legacy projects did complete end of last year, even in a Q4 where we did really, really well in the power solutions. We talked a long about when it will change and we'll come back to that. But I think Q4 is one of the best execution quarters we have seen in recent times, where also we've seen the lowest pre- and post-cal gap actually in many years. So I have here to shout out, well done to investors and to our partners executing on that in Q4. When it comes to power solutions in Q4, we had a strong end to the year. So the strong Q4 order intake of 6.5 gigawatt with continuous momentum across all regions in onshore and good market activity in offshore in EMEA in Asia Pacific. When we see the order intake, that was down compared to last year due to a very, very tough comparison with an all-time high quarter in Q4 2023. The ASP on new orders was in the quarter 1.18 million per megawatt. In the quarter, that was up from 1 million per megawatt last year in the same quarter. The order backlog in power solutions increased to a record high of 31.6 billion euros, up 5.6 billion compared to last year. This also is a testament that our energy solutions continue to have good tractions with customers across our core markets, and there are many of them. When we look at the charts to the right, you can see the comparison versus the U.S. last year, where we had one or two customers placing large orders in Q4, which we always say, sometimes you have to see the average of those and also what years they're covering. We had 1.6 gigawatt all the way up to the last banking day in the U.S., and we thank the team and also the customer for trusting us to do that. You can also see the offshore here, good traction. And then on the ASP, positively underlying, even with the usual influence and adjustment for scope and geography, very pleased to see the ASP is positive and at least stable at a higher level. So now let's go to the service business. so heading of the service business in q4 is we spent the time well the scrutiny of the service business is complete so while when service have had a difficult year in 2024 the scrutiny of the business is over and a recovery plan is in place and being executed service reaches 155 gigawatt on the service compared to 149 gigawatt a year ago solidifying our position as the largest service business in the industry The service order backlog continues to grow, now almost 37 billion euros, up from 34 billion in 2023. You will see the breakdown here to the right, and you will also see in my strategy update that we will spend a bit more time both in the details of the plan and also how we are going to execute it and in what time frame. When we look then at the developments in Q4, strong order intake and new secure pipeline. Again here, really well, Q4 Vestas development generated 612 megawatt of order intake for Vestas from two development projects in the U.S., At the end of Q4, Vesta's pipeline of development projects amounted to 28 gigawatts, with Australia, U.S., Spain, and Brazil holding the largest opportunities. Throughout 2024, Vesta's development continued to generate value with approximately 2 gigawatts of exits in that timeframe. You will see the breakdown of the development business here, and again, really thank you for insisting and continuing all the way to the last banking day of the year. Then we go to the sustainability. And in terms of the sustainability, I think here it's appropriate to say that we stand tall globally for sustainability. It is absolutely the right thing to do, and it will remain the right thing to do for us to come and the generation to follow. So when we look at the highlights here, the lifetime emissions avoided by produced and shipped capacity increased by 59 million tons compared to a year ago. You will see that in the chart to the right. In terms of the number of recordable injuries per million working hours, we're stable around 3.0, but 2024 was marred by five fatalities, including one Vestas employee. We tirelessly work to improve our safety performance across our value chain, and those experiences and the fatalities are absolutely five too many, and we, of course, are doing our deep dive of how we can improve from that. This is not good enough. While we will not reach our 2025 target for scope 1 and 2, carbon emission, we continue to make progress. You will see that over here in the scope 1 and 2, it's 105,000 tons of CO2. Excluding the business we bought end of 2020, so therefore excluding the offshore business, we would have achieved a reduction of 44% compared to 2019. I will just comment on that. We have not left our commitment to reduce scope one and two contrary to some quotes in the press. So therefore, here you can see the result. But it's not possible for us to predict if we buy a business that changes the CO2 emissions. And offshore is absolutely the right thing both to invest in and also to have as a business investors. We are also honored to yet again be heralded as the most sustainable energy solution company by corporate night. And I will say here that also led to a world number three in sustainability. And of course, it's a pleasure to see that. And we also congratulate Schneider Electric with being number one. With that, it's a pleasure to welcome Rasmus Gram, our interim group CFO to the financials. Please, Rasmus.

Thank you very much, Henrik. Hello, everyone. Really good to be here. And we start with the income statement for the full year, where for 2024 revenue increased 12% year on year to 17.3 billion euros, which is in the upper end of the guided range. And the growth was primarily driven by turbines delivered at higher prices. The EBIT margin before special items came in at 4.3%, also within the outlook range. And if we actually adjust for the sale of our controls and converters business in 2023, the improvement in the EBIT margin is 3.8 percentage points year on year compared to the 2.8% you can see in the table on the right. Return on capital employed continues to improve and is now at 8%, which is an improvement of more than 5 percentage points from last year. When looking at the quarter, revenue increased by 29% year on year, driven by higher revenue in both the power solutions and service segments. Gross margin improved by more than 7 percentage points to 18.1% as the turnaround in the power solution segment is now is now really visible in the numbers. And with SG&A costs being fairly stable, this means that Vestas generated 12.4% EBIT margin Q4, showing double-digit profitability and, as Henrik mentioned, one of the strongest quarters that we have seen for many years. Looking at the power solution segment, revenue increased by 28% year-on-year, driven by higher megawatts delivered in both onshore and offshore, as well as higher average prices. The EBIT margin in the quarter was 12.9%, which is up almost 10 percentage points compared to last year, leading to the highest quarterly profitability since 2017, and again, cementing the tremendous turnaround achieved in power solutions. The improvement was driven by better project execution, lower warranty costs, and the benefits from the operating leverage in what was still a very back-end loaded year. And here maybe just a reminder that we expect 2025 to follow a similar profile. And of course, looking at the chart to the right, you can see that historically this has been also the trend. And also, importantly, the quarter also marks the completion of the low margin legacy backlog from orders taken from mid 2022 and before. Service revenue increased by 30% year-on-year, driven by record high transactional sales in the quarter and also some currency tailwind. And if you look just on the underlying contract revenue, that increased 12% year-on-year, just to give you some flavor on that. The service generated an EBIT of €215 million in the quarter, equivalent to a margin of 18%, which was as expected. The cash flow statement for Q4 operating cash flow was 2.2 billion euros in the quarter, an improvement compared to also a strong Q4 last year, driven by higher profitability and networking capital improvements. Adjusted free cash flow was 1.8 billion euro, which is also an improvement year on year, despite the overall higher investment levels. And for 2024, for the full year, adjusted free cash flow amounted to 1.1 billion compared to slightly negative last year. And we're ending the year in a net positive cash position of more than 800 million euro. That's a really good number, right, Rasmus? That's a pretty good number. Thank you. Looking at working capital in the quarter... Working capital decreased considerably in Q4, not unusual, and this was driven by a reduction in inventories, while higher customer down and milestone payments were largely offset by higher receivables. And here it is also worth noting that we actually ended 2024 with lower inventories and net contract assets than last year, despite activity level being higher. When looking at investments in the quarter, we made investments of €403 million in the quarter, which is an increase compared to last year. And as also mentioned by Henrik, we are continuing to prioritize the manufacturing ramp in both offshore and the 4MW platform, particularly in the USA. As we have now begun serial manufacturing of our V236 turbine across our European sites in order to deliver on the first projects here in 2025. But this also, of course, triggers then higher depreciation and amortizations. Looking at the provisions and LPF, we continue to have a heightened focus on quality in order to help LPF improve and, of course, warranty provisions to come down. So over time, an improved LPF should lead to lower warranty provision levels. We do see a slight increase in the LPF in Q4, which was driven by downtime at two specific offshore sites that we also addressed in Q3. But we are actually seeing the underlying LPF continue to improve. Warranty costs amounted to €162 million in the quarter, which corresponds to 2.6% of revenue. But maybe more importantly for the full year, warranty costs came in at 4.3% of revenue compared to 5.3% in 2023 and 6.4% in 2024. And looking at the capital structure, the combination of what we saw in terms of strong free cash flow and improved earnings, this leads to a further decrease of the net debt to EBITDA ratio to now negative 0.5, well below our internal target of less than one. And on the back of this 2024 numbers, we then propose a payout of a dividend of DK 0.55 per share. as well as initiating a share buyback program of 100 million euros in order to return value to our shareholders. And all of this corresponds to a payout ratio of around 35%. And with that, I would like to pass back to Henrik for a strategy update.

Thank you so much, Rasmus. Not the worst set of numbers you could do your first presentation for to this audience. When we then look at the strategy updates, I will try to keep this. When we look at this, this is what it's all about. How do we actually get the CO2 emission down to also control and at least now damage control the temperature rise the planet is facing? I think we will just show this in the chart here and you can see the various sort of scenarios with it gives us what are probably the worrying thing. for all of us is that the stated policies will actually increase the temperature to around 2.4 degrees. We already now know another data point, which was the 2024 gave us a rise to now historic high of 1.6 degree above pre-industrial thing. So therefore, this is what it's all about. So when we then look at that also sets both the scene and to some extent the tee up for what is the growth potential for wind. The charts to the left you know very well. This is the energy consumption in 2023 for the planet. And here we see electricity still is around 20%. Wind is approximately 1.6% of the electricity generation. That means energy from wind comes to somewhere around 1.6% and in total of electricity 8%. When we then need to look towards the right, then you can see both the stated policies, we can see the pledged policies and we can see the net zero and how much of that needs then to come in, for instance, for the wind and what proportion of we will have. Then we are not talking about a doubling of the capacity annually. We are talking about a quadrupling of the capacity towards the 2050. And if I may just draw your attention to this, this is not sort of a cumulated 300 gigawatt. This is an annual constructed target towards 2050. So we have a steep ramp up in front of us. That also means when we talk about our global priorities, first thing first, you know very well we had a target that was back in black for 23. We are now operating in the two years, 24 and 25, which is back on track. We had six strategic priorities, onshore, offshore, quality, cash, efficiency, and people. And not surprisingly, we added service to that. So we have seven strategic priorities. And I will say in actually right now for Vestas and for the financials, the free onshore, offshore, and service are the three key ones. Also, we'll talk more about in both the journey to 10%, but it's also what gets really right now the attention for the financials. That also means when we come out and we still have a long-term sustainable growth view in terms of our strategy towards 2030 hasn't changed. We still see ourselves being a global leader in the sustainable energy solution based on a strong foundation onshore, a strong foundation in service. We're establishing the same similar strong foundation in offshore. And of course, we are well, well supported and helped by our colleagues in development and our interested customers for the projects coming out of development. I will just double-click here because the onshore and offshore we talked about, and I'll also encourage you to read much more about these things in our annual report, but on the service recovery plan, let me double-click on that. So the scrutiny and the cost challenges in 2024 had and did lead to a revised operating model. We did a scrutiny of our service business, and it is now complete. As previously mentioned in the scrutiny, it highlighted three main cost challenges equally important. It's the unit cost, it's the operational inefficiencies, and it's the quality-related effects. Not surprisingly, either of the three, and when we look through it, we just try to give you some examples of it here to the right. We had a net contract assets end of 2024, i.e. the unbilled revenue that amounted to €912 million, or around 3% of the service backlog. The new service operating model is implemented as of 1 January 2025 to strengthen the accountability and also the regional engagement and also ownership of the service business. That was completed by our group COO for Service, taking position by the 5th of January, and they are now in full operating floor when we look at the service business across. You can see the charts over here and also the five-year development in both backlog and the net contract assets. What does it then entail to have a recovery plan for a business that is still very strong? First of all, it's about getting the service back on track. It involves the full team Vestas and also the full value chain. But as you probably guessed out of some of these points, it's not only about service colleagues and the service business. It also links to the technology. It links to our digital part of Vestas. And it not least links to our technology colleagues that also have the responsibility together with everyone else around the quality of the product. So the Service One plan, it's cross-functional and it is about regional collaboration and it's about delivering for you, dear customer, at your site. The global priority list of initiatives, we will share some of them here, but it includes a list of priorities that people will be measured on. And we're also saying here, it's a strategic priority list that runs in 2025 and 2026. So in reality, it's four to eight quarters ahead from where we are today. We have not had any doubt that when we reviewed the business that our long-term ambition of 25% EBIT is still the same. We are not at 25%. You saw our Q4 numbers as said by Rasmus is currently sitting at 18%. And that's probably a fair run rate of the business. And therefore, we are building that on top when on coming the four to eight quarters. And then we will see how quickly we can get to the 25% EBIT. When we then look at some of these things, first heading is the commercial resetting. We will drive commercial excellence with focus on price, scope, billing, profiles and contract trimming. We are mentioning here contract trimming for the first time. It also means similar to what we've been through in power solutions. When you do this, you could call it a turnaround. You will also allow yourself, if it doesn't jive and doesn't solve itself in other ways, then contract trimming can be the only way out or it can also be that we simply choose not to extend or renew some of those contracts. As already mentioned, I think one of the most important things, at least on the external side, is that the wage inflation in mainland Europe is now settling around 2.5% in annual wage increase, which is very much in line and therefore connected to the underlying inflation indexes that are so important for the service business. Another point is the intelligent work order scheduling. That is very much addressed towards the person and the colleague that is in the field every day. So it introduces automatic intelligent work schedules based on commercial and operational profiles. So you're actually doing what you are expected and also what you are paid for. The standardized cost control, that means it's the regional cost control for teams. is to practice benchmarking using standardized AI-enabled tools, which means it's just comparing people and standards of how we work and how we do that. And I think that will make a lot of sense in the business. Last but not least, the advanced troubleshooting software, which means also we have to become better in using the AI tools to reduce the turbine visits, but also to deactivate some of the false alarms and improve the predictive maintenance. This is one of the other things we mean by the inefficiencies we have found. You will see over here in a short little overview as to the left, what points do the commercial resetting touch. And of course, the commercial resetting is very much about the unit cost on the operational inefficiency and quality-related effects. We have to get that in point. You can't have that commercial discussion unless we perform at our best. The intelligent work order scheduling touches all three points. The standardized cost control touches the two points, unit cost and operational inefficiency. And then the advanced troubleshooting software absolutely addresses the operational inefficiency and the quality-related effect. I will say there is a four to eight quarters journey ahead. It's specified, and I know from being now and seeing many of the service colleagues, this is a committed team. but they will also have a fair bit of watching and all the attention they need to get the execution away over the coming four to eight quarters. So I'll only wish them good luck with that, and we are all in it as a team best at supporting the service business. That also means when we look at our long-term ambitions, this is also for us important. You will also be able to read much more about that in our annual report. But we haven't found reason to change any of it. So revenue still, we grow faster than the market and the market leader in revenue. On the EBIT side, best-in-class earnings, at least 10% EBIT margin, and that's an industrial-related margin. And then return on capital employed, 20% return on investment over the cycle. Of course, ROSE and EBIT closely goes hand in hand. And when we see the free cash flow, free cash flow positive, and therefore, Rasmus, wonderful number for 2024 and a testament to the global team and our customers that have supported that a long way. And then, as I said, a shout out on ESG, a carbon neutrality across our own operations and 45 percent scope reduction by 2030. We got to keep an eye on this because we give ourselves a very hard time for scope one and two. But it is on the scope three. We have a ratio that is much higher. We speak more about that. in our annual report, and I really encourage you to read more about our initiatives and how well we are doing, contrary to just a heading in the papers. With that, I'll give you a bit more on the 10% EBIT margin. And you will see in here, we'll share the building blocks, and we'll also share them in a loyal way of saying there is a different size of the building blocks shown below. It doesn't state when, and it doesn't state how much, so we would like to encourage you to use your imagination after listening to not least this call, but also in our meetings in the coming days. So we start with a 2025, which is mid of the guidance range, 5.5%. That means in reality, we need to build not only a bridge, but also a credible building blocks to get to 10%. If I look to the far left, I think on the project profitability, we have come a very, very long way. When we went through both 21, 22, and to some extent 23, this was probably one of the biggest building blocks we had. But also with our comments today and what we have seen for Q4 in 24, we can say that journey still has basis points in it, but it is not the same size of basis points that we started with. You can see that, and that is probably one of the main contributors of why we are now solidly talking about plus 4% EBIT in what Vestas is achieving. I think on the onshore volume, the operational leverage and the better absorption of fixed cost is still very obvious. I also need in the onshore volume to mention here the ramp up we are doing in the US. It's a ramp up in onshore and onshore particularly. That causes challenges because it looks easy when you split shifts and you run many more shifts than you did 18 or 24 months ago. but it does not give the tack time imagined that you came from with one shift. That's not the tack time you have for two shifts, and therefore you keep investing both in additional capacity and you also keep investing through a lower tack time until the factory will run fully efficient. That we are not through, and therefore part of both exiting 24 and also coming into 25 gives us further basis points to have on the onshore volume, but also in the basis points we can recover from the onshore ramp up in the U.S. I think we probably in all in all have a bit better fixed point here together when we talk about the service. Service is expected to live on its recovery plan. And of course, it sits right in the middle. You can calculate it. If the difference is between 18 to 25 percent, you can make your assumptions on the service business and how much it will grow in the coming years. It will still grow. And therefore, it's fair to assume that there are some building or a building block in here that service contributes to the overall group 10% target in the range of, leave it to you. But that you can definitely do the calculation of. In terms of quality, I will say often when we talk quality, we bring it down almost in the discussion with you to one single slide, which means what is the warranty provision in the quarter and what's the warranty provision for the year. The truth of it is the cost of poor quality for a manufacturer like us is throughout the whole value chain. It is what goes on in the factories. It's what goes on in the site. But it is also what goes on, of course, in the warranty provision. So as you have seen in the last years, we are trending in the right direction, but we are not there yet. We are not there yet in terms of warranty provision. We have seen variances between the quarters, but we are still at 4.3%. It's the lowest warranty provision annually we have had in the last five years, but it's not where we think the business should be running, neither in onshore or in offshore. Therefore, the warranty provision contributes but equally important and to some extent as important or more is the cost of poor quality that sits outside that. That's the scrap, it's the waste that goes on from the factories or even at site or where we lose things that doesn't work in the quality of the value chain. So that bubble is actually bigger than what we can see ourselves improving in the run rate from the service. And then last but not least, here is the biggest thing. which is the offshore ramp-up. We continue to scale offshore, you know that. We are entering a year where we are putting the new turbine in play. We are ramping up the serial manufacturing of it. But even with the two projects we have this year, it is not able to reach margin on power with onshore at all. Why is that? Two projects or a similar size business is not able to absorb the now beginning of the amortization and depreciations. We've said that all along. There sits, at least in the amortization and depreciations, a 200 million increase for this year, equal to, in round numbers, around 100 basis points. but includes quite a bit more. The ramp-up of offshore that is happening predominantly in Europe, predominantly across four manufacturing sites, is absolutely going on as we speak, but it also means there is a huge investment going on in this outside, just the one on the depreciation and amortization. So here sits a number of hundreds of basis points which, of course, some of them will go away in terms of the ramp up. It gets better. And others will simply be diluted when we are in years where we can use the capacity we are building to. And no, for those who are interested, we are not here saying what capacity we are building to and how we are building it. But we are advanced in it, but we are definitely not at the runway. And this is the year where we need to make that investment. If you add those five building blocks together, most of you will come to something that is well in excess of 450 basis points. We do as well. We also learned one thing, external worlds sometimes cause a bump or two on the road, so therefore we feel comfortable that we have built and we have building blocks here that contains more than the usual 450 basis points to get to 10%. And I think we can also, with taking 2024 results to you, also say we have something and evidence to have it in because what we have done in the onshore and the power solution there is a testament. But it takes time, investors, because the backlog takes time, as always. So with that, thank you for taking time to listen to this strategy update. I will now go to the outlook for 2025. So the outlook for 2025, a further increase in revenue from this year, so to 18 to 20 billion euros. We set an EBIT margin before special items of 4 to 7%, and that includes a service that is expected to generate an EBIT before special items of around 700 million. The investment continues around the same level of 1.2 billion, which, of course, we also talk more about. And please encourage you to read through our annual report where we also write more about what kind of investments we are doing. But it is mainly also now in manufacturing, ramp and tooling. for especially the offshore. With that, I'll just remember to say that the 2025 outlook is based on the current foreign exchange rates, and I think that's where we are sitting currently. So with that, So with that, the financial calendar for the coming months. So we have the ADM, 8th of April, with the dividend proposed, as Rasmus was mentioning. We got the disclosure in May, August, and November for the year. So with that, I will just leave it to the operator and the Q&A. Thank you so much.