Vestas Wind Systems A/S

Good morning and welcome to Vestas' Q2 investor presentation. And also here let me start by extending a huge thank you to our customers, other stakeholders, and not least colleagues around the globe. It has been a busy and also a quarter with a certain degree of uncertainty in policy, not least for our more than 5,000 dear colleagues in the U.S., It's also a warm welcome to Jacob, and you will have to bear a bit of patience until the financials before you listen to him. So welcome, Jacob. And with that, let's go to the key highlights of the quarter. So the quarter ended with a revenue of 3.7 billion euros. That's an increase 14% year-on-year. The EBIT margin ended at 1.5%. Improved onshore project performance. Lower warranty cost offset by the offshore ramp-up cost. We'll speak more about that. The order intake ended at 2 gigawatt. Lower order intake year on year as customers have been awaiting policy clarity, particularly in the U.S., and definitely we'll talk more about that. And then manufacturing ramp-up driving costs and investments. Onshore and offshore ramp-up is progressing, and the first V236 nacelle assembled at the facility in Poland. And then we ended with a return on capital employed of 11.5% last 12 months. Improved profitability in the last 12 months results in the highest return on rows since 2020, which, of course, is very pleasing. And last but not least, our 2025 outlook guidance maintained, and we'll take that in the end of this presentation. So with that, let's touch shortly on what are the markets and what markets are we in. The wind energy, and this is fact-based, is wind, and it's affordable, and there is a security element, and there's definitely also a sustainability element. If we look at our current business environment, inflation, raw materials, and transport costs are stable. However, tariff will, over time, increase costs, which we see as an imminent and also a link, but, of course, for us, a long lead time with the backlog. the ongoing geopolitical and trade volatility leading to regularization. And we, of course, say that. And we also notice that throughout what we have done in the previous years. When we get to the market environment, the heightened focus on energy security and affordability, you will also notice that in the most recent wording from the U.S., where we are talking detailed around how FEERC and components will be discussed and also seen going forward. The grid investment is prioritized in many of our key markets and it is becoming also a very important part of getting the solution successfully in the market. When we look at permitting, it is improving in some markets, but overall permitting, auctions, and market design are still challenging, and sometimes we still see even very successful government having an unsubscribed auction simply because we don't apply the same principles from neighboring countries. When we then look at the project level, I would say a really, really pleasing quarter We've seen a really good execution in the onshore across the markets where you have seen our deliveries. And we are positive towards the end of the year if we can continue the same discipline and also the same execution level of what we have seen in Q2. That also means we now go to the power solution. And power solution in Q2, I will say lower, maybe a bit disappointing order in Q2 compared to where we like to be, both compared to last year, but also where we would like to be from our own side. We see that with good activity in EMEA. So order intake ended at 2 gigawatts. It was down 44% compared to last year. The decline was mainly driven by a lack of orders in Americas, especially in the U.S., as customers have been awaiting policy clarity. There were no offshore orders in Q2, as noticed. The ASP declined to 1.11 million euro per megawatt in Q2 compared to 1.24 million per megawatt in the prior quarter. The decline was driven by a change in order mix and also while the underlying pricing remained stable and positive for investors. As you also noticed, we have had a very good start to Q3, and this is where disconnect the two quarters is wrong to do. See it in connection with the policy changes that happens over the quarter end. So we've seen several orders announced, including in the U.S., as the policy outlook is clearer. And that also means quarter to date in this quarter, we are already well past what we saw in Q2, including approximately 1.5 gigawatts so far in the U.S. The Nacelle facility in Poland has now started serial manufacturing, and the first 236 Nacelle left the factory in June. Actually, Jacob, we were there in June when that happened, and it's really nice to see that the ramp-up our team has been working on for now, saying years, is now coming to fruition. Of course, it also means that our offshore ramp-up cost in a Polish factory is around top of what we have seen because now we now have more than 500 employees working in the nacelle factory in Poland. It is an intense period for the offshore because we have turbines going out to EMBW and Baltic Power in Hedreit as well. So therefore, we see our 15 megawatt is now getting up on both sides, and we are in close, of course, dialogue and communication with our customers and partners on that. Ramp up at its peak, and we'll talk more about that, I'm sure, later in the call and also on the coming days. With that, I'd like to go to service. So again, solid quarter as recovery plan continues. When we look at the service order backlog, increased to 36 billion from 35 billion a year ago, but declined compared to Q1 due to the development in foreign currency translation. And that actually goes across for most of the businesses, and Jacob will give you some more details on that later on. Service reached 159 gigawatt on the service compared to 151 gigawatt a year ago. The commercial reset, which includes contract trimming and deselecting of contracts with unattractive term, is ongoing. Even so, Gigawatt under service during the quarter evidence that our solutions are valuable to both our customers, partners and investors. If we look at the other part, the standardized cost control, bringing down direct costs and reducing unscheduled maintenance continue to be among the top priorities to improve our service operations. And I really, really welcome the many, many, many of our colleagues that are involved in that and also improving on a daily basis. Thank you for that. When we look at Vestas, we are two quarters into the service recovery plan, as expected to run to the end of 2026. And I just want here, you can see the numbers, the breakdown of our 159 gigawatts to the right, and then also remind that we have an average years of contract duration of 11 years. With that, one also to remind you, it's a slide we shared with you in the beginning of the year, but just to highlight, when we look at the service recovery plan, we have just boxed in the two main headings over here, where most of the resources and also a lot of dedicated leadership time goes into. The commercial resetting where we drive the commercial excellence with focus on price, scope, billing profiles, and contract trimming. And we see a wage inflation that, at least in Europe, is settling fine around 2.5%. When we look at the standard cost control, that means it's hard day-to-day work for the regions, and that is being driven by them and creating the right ownership. I think we have to admit, lacked when we look throughout 2024, but that's a new reality from 2025. Quickly go to development. I will pass that relatively quickly. Not a lot news to say. Development is focus, focus, focus on the projects we are seeing. So in Q2, 25, our pipeline of development project was stable at 27 gigawatt with Australia, US, Spain, and Brazil holding the largest opportunities. Strategic focus is on maturing and growing a quality project pipeline, as well as conversion of mature projects in project sales and also related turbine order intake. In the quarter, Vestas Development firmed one project for 102 megawatt of order intake in one of our markets globally. You can see the breakdown here. Not a lot of change. Business as usual. But as you will also appreciate in the environment, a lot of focus on getting the full solution rightly done in the development and therefore shared and sold to our partners in good So with that, we go to sustainability. Vestas remains the most sustainable energy company in the world. We are proud of it, and we also keep our relentless focus in putting more energy up available, but also a focus on keeping the sustainability of it. The turbine produced and shipped in the last 12 months are expected to avoid 480 million tons of greenhouse gas emission over the course of their lifetime. This positive development of 65 million tons was driven by increased production over the last 12 months. Therefore, probably connecting to that, the carbon emission from our own operations increased by 8,000 tons year-on-year due to the increased activity, especially also in the offshore construction and service. The number of recordable injuries per million working hours, TRIR, was up from 2.8 to 3.0 year-on-year. Safety remains a top priority for us as we tirelessly work to improve our safety performance and records across our value chain. However, it's also clear that if you look at the number of full-time employees we have today, we also have to constantly, constantly put our effort to this when we are welcoming so many new colleagues, especially in our own factories, but also on the new sites where we are putting our solutions in play. With that pleasure, I'll hand over to Jacob and welcome him to our investor presentation here.

Thank you, Henrik. And it's great to be here. And we will start with the income statement. We see three key highlights for the quarter. Revenue increased 14% year-on-year, driven by higher delivery volume on turbines and higher revenue in service. Here it's worth to note that the service revenue in the comparison quarter was negatively affected by more than 300 million due to the planned cost adjustments last year. Our gross profit increased to $417 million in the quarter, primarily driven by the reasons mentioned above, as well as the increased profitability in onshore, which was offset by ramp-up costs in offshore. EBIT margin before special items was positive 1.5% in the second quarter. As previously communicated, 2025 will be a back-end loaded year, with most of our activity and earnings expected in Q3 and Q4, so basically similar to the last many years. Moving into the segments, first with power solutions. Revenue increased by 7% year-on-year, primarily driven by higher onshore delivery volumes in the US. And you can actually best see these details in the interim report on page 10, where you see that the US is up with 500 megawatt. EBIT margin before special item was minus 0.4%, down 1.1 percentage points year-on-year. The lower profit reflects ramp-up cost in offshore and higher depreciations and amortizations. This was partly offset by better profitability in the onshore segment, which continues to perform very well. For the service segment, excluding the planned cost adjustment made in Q2 last year, service revenue declined 4% year-on-year, mainly due to a 3% currency headwind. Our transactional sales were on par with last year. Service generated EBIT of 163 million, corresponding to an EBIT margin of 17.2%, in line with recent quarters. The service recovery plan continues, and Henrik has already spoken to this, and it will take some time before benefits are visible in the financials. Moving on to cash flow and first looking at the net working capital. Networking capital decreased in Q2 due to an increase in the level of customer down and milestone payments, partly offset by higher inventories, as we prepare for higher activity in the remainder of the year. Compared to Q2 last year, we have seen a considerable improvement in net working capital, and we continue to focus on improving this. Our cash flow statement comparing Q2 24 with Q25 showed a positive operating cash flow of 120 million in the quarter, a decline compared to last year. The decrease year-on-year was primarily driven by a favorable development in net working capital in Q2 24, partly offset by better profitability this year. Adjusted free cash flow in the quarter amounted to minus 220 million, a decline compared to Q2 last year, again driven by the reasons mentioned in above. Finally, we ended the quarter with a net debt position of 7 million euro after both paying out dividend and buying back shares. Our investments are in line with our plans and in line with previous months. Total investments amounted to $288 million in Q2. The investments are primarily related to tangible investments such as transport equipment and tools for our offshore ramp-up. The recent increase in LPF is caused by a few sites, including the previously mentioned offshore sites that have been undergoing repair. Disregarding these sides, the underlying LPF, lost production factor, continues to trend down. Warranty costs amounted to $115 million in the quarter, corresponding to a 3.1% of revenue, which is an improvement from 4.3% in Q2 last year. Orange seed provisions consumed were 188 million. The higher consumption level in this quarter is related to the above-mentioned repairs. And for me, ending on the capital structure slide, as seen from previously, we have a zero net debt. Our earnings per share measured on a 12-month rolling basis improved to 0.8 euro, driven by the better profitability. And finally, as Henrik started out by saying, Return on capital employed improved to 11.5% as the earnings recovery continues. And this is, as you mentioned, Henrik, the first time since 2020 that we are above 10%. And on this note, I pass over the mic to Henrik.

Thank you, Jacob. Thank you. First of all, it's always exciting to do your first presentation, not least sort of concluding on the first couple of months. I think as we are talking about Q2, I'll also take this opportunity to reach out a bit of a special thank you to Osmus because Of course, he has been holding very much that together with the rest of the organisation. So therefore, to many of you, you will also find both Rasmus and Jacob sort of being a bit of a pairing here over this quarter. So you get a proper way of saying cheerio to Rasmus. Rasmus continues as our CFO for the... global service business, which we are hugely excited about. So we look forward to that. So with that, I'll go to the outlook for the year. As we said, remain the same. So revenue, 18 to 20 billion euro. The EBIT margin before special items, 4 to 7%. Services expected to generate EBIT before special items of around 700 million. And then when we look at the total investments of approximately 1.2 billion. This outlook is also based on the current foreign exchange rate, and as you will clearly have both noticed and appreciated, that it is putting some pressure on a couple of the absolute numbers that are in here because, of course, with the dollar decline towards the euro, we see that effect from the U.S. and also a couple of our regions where currencies are tied to the dollar. With that, really thank you for listening in to us. And with that, I will go to the Q&A and pass back to the operator.