Vestas cuts guidance, blames cost overruns 

Danish wind turbine maker Vestas cut its guidance for 2011 earnings and revenue in a surprise trading update on Tuesday, saying costs of developing a new turbine had overshot expectations and some revenue had been delayed.

The world’s biggest wind turbine maker, which struggled in 2011 as the global economic crisis dented investment in energy infrastructure, said it would defer some revenue and earnings into 2012 and book higher-than-expected costs.

“As a consequence … revenue for 2011 is now expected to amount to approximately 6 billion (euros), and the EBIT margin to approximately 0 percent,” Vestas Wind Systems A/S said in a statement.

In October, the company lowered 2011 guidance to 6.4 billion euros from 7 billion, and for the margin on earnings before interest and tax (EBIT) to about 4 percent from 7 percent.

Official accounts for the fourth quarter and full-year 2011 are scheduled to be released on February 8.

The profit warning came just four days after Vestas’ investor relations chief said he was confident of reaching the guidance for 2011 order intake, though the company had no word on cost overruns at that time.

Vestas confirmed on Tuesday it did achieve its guidance for 2011 order intake.

Sydbank analyst Jacob Pedersen told Reuters: “This is an extremely negative announcement, and confidence is once again entirely lacking.”

Vestas Chief Financial Officer Henrik Norremark told analysts in a conference call that the company announced the cost problem as soon as it became known and said Vestas had no need to raise fresh capital.

“I can confirm that we do not need new equity in the coming months,” Norremark said.

“If we had known earlier, we would have announced it earlier,” he said of the cost overruns which he said became evident largely from sub-contractors through end-of-year reporting.

Vestas said its 2011 order intake was 7.4 gigawatts (GW), within its guidance for 7-8 GW of firm and unconditional orders, adding it still expected a positive free cash flow for the year.

“Vestas still expects to realize a positive free cash flow in 2011, in spite of the fact that shipments amounted to 5.1 GW compared to previous expectations of 5.5 GW,” Vestas said.

Together with order intake, shipments are the most important factor of cash flow generation, it said.

REVENUE AND PROFIT DELAYED

Some 400 million euros in revenue and 130 million of EBIT are expected to be deferred to the first quarter of 2012, the company said.

Costs are seen some 125 million euros higher than expected, due mainly to development costs for industrialization of the V112-3.0 MW turbine and the GridStreamer technology, which ensures that Vestas’ 2 MW turbine complies with new regulatory demands, Vestas said.

Contrary to normal product development costs, all development costs related to industrialization of new products are immediately expensed, the company said.

“The total production and product costs per MW are expected to decline during 2012, however, the result will be negatively affected by approximately 430 MW that has been produced at relatively high costs during the fourth quarter of 2011 and which will be delivered in 2012,” Vestas said.

It said it still intended to reduce fixed costs by at least 150 million euros with full effect from the end of 2012.

For the fourth quarter of 2011, Vestas expects to generate revenue of about 2.2 billion euros and EBIT of about 85 million, the company said.

Vestas said that it had solved previously announced problems at a generator factory in Travemunde, Germany. It also said it would announce a new organization for the company on January 12.

Vestas shares, which lost about two-thirds of their value in 2011, closed up 2.4 percent on Tuesday before the announcement. Trade on the Copenhagen stock exchange resumes at 3:00 a.m. EST on Wednesday.

(Reporting by John Acher and Johannes Hellstrom; Editing by David Hulmes)