Vestas narrows its financial outlook for 2024, adjusting revenue expectations to € 16.5 billion-17.5 billion (from € 16 billion-18 billion) and the earnings before interest and tax margin before special items to 4-5 percent (from 4-6 percent). This adjustment is due to increased planned costs in the Service segment.
Inflation indexation continues to protect profitability within the order backlog, but the adjustments to planned costs are impacting current profitability in Vestas’ Service segment. As a result, for the second quarter of 2024, the Group’s earnings before interest and tax margin before special items is expected to be negative 5.6 percent, with revenue at € 3.3 billion, according to preliminary figures.
Due to percentage-of-completion accounting, the adjustment in the Service segment affects earnings before interest and tax in the second quarter of 2024 with a negative accounting impact of approximately € 300 million. Preliminary earnings before interest and tax before special items for the Service segment in the quarter is negative € 107 million.
Despite this adjustment, Vestas maintains that its Service business remains highly profitable. Excluding the negative adjustment in the second quarter of 2024, profitability is consistent with recent quarters and is expected to continue on an upward trajectory.
The adjustment does not significantly affect the value of the Service order backlog (preliminary figure for the second quarter of 2024: € 34.9 billion) or adjusted free cash flow (preliminary figure for the second quarter of 2024: € 0.5 billion).
The Service segment adjustment is due to a combination of sustained inflation within specific components, indirect effects of increased repairs and upgrades, and operational inefficiencies, partly offset by anticipated future efficiency gains and cost-saving initiatives.
In the Power Solutions segment, the turnaround is progressing well, with an improvement in the earnings before interest and tax margin of nearly 8 percentage points year-on-year and a quarterly order intake of 3.6 gigawatts.
Although momentum and results in Power Solutions are ahead of schedule, the lower-than-expected profitability in the Service segment has led to the narrowing of the full-year outlook on Group revenue and earnings before interest and tax margin. Vestas now expects the Service segment to generate earnings before interest and tax before special items of around € 500 million (previously € 800 million-880 million).
The outlook for total investments remains unchanged at approximately € 1.2 billion.
