Danish wind turbine manufacturer Vestas has posted another quarterly loss, due to extraordinary warranty on a “considerable number of blades”, and re-introduced a guidance for all of 2020, expecting a lower profitability than seen earlier this year.
Earnings before interest and taxes (Ebit) and special items plunged to €34m ($40m), from €128m in the second quarter of 2019.
The decrease was driven by increased cost levels derived from warranty provisions as well as logistical challenges and supply-chain bottlenecks, amplified by the Covid-19 situation. Costs related to warranty provisions amounted to €283m, including a €175m one-off provision.
The OEM in consequence posted a net loss of €5m, compared to a net profit of €90m in the second quarter of 2019. It was the second quarter in a row Vestas had suffered a loss.
Vestas stressed the extraordinary provisions in the second quarter of 2020 are not related to current or future production but cover a specific repair and upgrade of a confined, but considerable number of blades that are already installed.
“Current and future blades will not be affected by any of this,” chief executive Henrik Andersen assured investors during an earnings call.
Andersen refused to tell which number of blades had been affected, or with which turbine model they are associated. But he did disclose that the damages are related to “high intensity lightning” and to a number of confined spaces.
Apart from the mysterious blade problem, results also suffered a €20m direct impact from the coronavirus pandemic, chief finance officer Marika Fredriksson said.
“The COVID-19 pandemic continued to impact the renewable energy industry and the global economy in the second quarter of 2020,” according to Andersen.
“In these challenging circumstances and without state aid, Vestas’ almost 26,000 employees have performed strongly, growing our revenue by 67% percent compared to the same quarter last year and achieving an order intake of 4.1GW as well as a record high total order backlog of more than €35bn.”
The company’s revenue actually rose during the second quarter to €3.54bn ($4.16bn), up 67% from the year-earlier period, primarily driven by a higher volume of wind turbine deliveries in the US, and despite a negative impact from foreign exchange effects of about €100m.
“The global pandemic and economic downturn will continue to create uncertainty in 2020, but we remain confident in our ability to ensure business continuity across our value chain and are therefore reintroducing guidance for 2020 with unchanged outlook for revenue of €14-15bn, while the EBIT margin is updated to range between 5 and 7%,” Andersen added.
Lower profitability expected
In light of the difficult economic environment, but a simultaneous rising order intake both in wind turbines and services, Vestas re-introduced a guidance it had suspended in April due to disruptions in the wake of the coronavirus pandemic.
The company continues to expect revenues of €14-15bn, as in the previous guidance, but lowered the expectation for its earnings before interest and taxes margin (Ebit margin) to 5-7%, from the 7-9% still expected until April. The lower profitability forecast includes the €175m in warranty provisions.
The company now sees total investments of less than €700m this year, compared to about €700m seen earlier.
Vestas didn’t disclose how much less than €700m it expects to spend this year, but Fredriksson said a normal investment level for the company would be €500-700m.
After having come up with a number of new products recently, Vestas will likely reduce its R&D spending somewhat in the foreseeable future, the CFO added.
The MHI Vestas offshore wind joint venture, in which Vestas and Japanese conglomerate Mitsubishi each own 50%, had a net loss of €12m during the second quarter of 2020, compared to a net profit of €20m a year earlier.
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