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Vestas Wind Systems A/S
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== '''Macro analysis''' == In 2022, Vestas experienced a surge in electricity prices, leading to increased value in wind turbine output. However, the company's financial performance was impacted by geo-political uncertainty and high inflation. While the Service segment demonstrated robust performance with a remarkable 27 percent revenue growth and a 21.4 percent EBIT margin, the profitability of the Power Solutions segment decreased to (13.3) percent. In response, Vestas exercised discipline and raised the average selling price of their wind energy solutions. '''Special Items''' In 2022, Vestas decided to withdraw from the Russian market due to the Russian invasion of Ukraine. The wind-down of operations and termination of contractual relationships ensued. In January 2023, Vestas fully exited Russia, leading to deconsolidation of its Russian entities. The first quarter of 2023 saw a net expense of EUR 3m in special items, which included a EUR 2m gain from the deconsolidation. Additionally, an income of EUR 29m was recognized for adjusting the manufacturing footprint in India, including the reversal of a previously recognised write-down of inventories worth EUR 34m, partly offset by other costs of EUR 5m. '''Proftability''' In 2022, Vestas reaffirmed its commitment to building a stronger ecosystem with renewables through fewer and larger partnerships integral to their operations and value creation. Despite unexpected challenges, Vestas is on the right strategic path, with the Executive Management team and Board working closely to update and execute their strategy in 2023. Sustaining progress in Service, Development, and Offshore is essential, while profitability in the onshore business remains a priority. With a solid combined order backlog of EUR 49.5bn, Vestas aims to maintain pricing discipline and operational efficiency. As Vestas celebrates its 125-year anniversary in 2023, their goal is to achieve a double-digit EBIT margin by 2025, starting with profitability in 2023. They express gratitude to employees, partners, customers, shareholders, and stakeholders for their collaboration and support. Emphasising the importance of partnerships across the value chain, Vestas aims to industrialize products and address quality challenges to drive the energy transition forward. Their ambition to create a healthier industry persists, demonstrated by the improved customer Net Promoter Score. Vestas remains committed to addressing market fundamentals and acting now to accelerate the transition to a net-zero future through wind energy. '''2023 outlook''' In 2023, Vestas expects negative impacts on revenue and profitability due to high inflation and reduced wind power installations. Slow permitting in Europe and lower activity in the USA are contributing factors. Despite higher prices on order intake, profitability remains challenging. Vestas emphasizes strengthening commercial discipline and the value chain with partners to improve industry profitability. Revenue outlook ranges from EUR 14.0bn to 15.5bn, including Service revenue growth of at least 5 percent. Vestas targets an EBIT margin before special items of (2)-3 percent with a Service EBIT margin of around 22 percent. Total investments are expected to reach approximately EUR 1bn in 2023, considering uncertainties related to execution. The outlook also reflects the impact of the sale of Vestas' converter factories, with an expected impact on EBIT before special items of around EUR 150m. Vestas' Development business is growing, and income related to sale of Development projects is now included as part of normal operations from January 2023. Potential disruptions in production and shipment, and exchange rate fluctuations, may affect full-year results. '''ESG''' "'''Sustainability in everything we do!"''' The urgent need to accelerate the sustainable energy transition has been reinvigorated by the dual threats of climate change and energy scarcity driven by Russia's war of aggression. Vestas' technology already contributes significantly to this solution, with their turbines in 2022 alone expected to avoid 408 million tonnes of CO2e emissions while promoting energy independence and job creation. To meet global climate goals, wind energy installations must quadruple by the end of this decade. To achieve this, Vestas recognizes the importance of strategic partnerships to scale sustainable energy solutions while ensuring long-term sustainability through their "Sustainability in everything we do" strategy, encompassing the entire value chain. Vestas is committed to achieving carbon neutrality across its operations by 2030 without relying on carbon offsets. They are working with strategic suppliers to lower the carbon intensity of their turbines by 45 percent by 2030, achieving this through changes in design, materials procurement, and decarbonizing infrastructure. Vestas aims to create zero-waste wind turbines by 2040 through their Circularity Roadmap, setting interim targets for increased recyclability, material efficiency, decreased supply chain waste, and higher component utilisation. They prioritise safety, aiming to reduce the injury rate by 85 percent by 2030, increase women in leadership positions to 30 percent, and benefit 35,000 community members through CSR projects by 2025. Vestas intends to lead the transition to sustainable energy by electrifying new sectors and campaigning for sustainable change. They seek strategic partnerships to overcome the challenges faced by the renewable energy industry and build a world powered by sustainable energy, promoting a sustainable and resilient energy system for a better future. '''Markets''' '''1. Europe:''' Europe has been a pioneering region in the adoption of renewable energy, with strong commitments to reducing carbon emissions and transitioning to sustainable power sources. Vestas has established a significant market presence in countries like Germany, Spain, and the United Kingdom, where wind energy has become a vital component of the energy mix. European nations' focus on renewable energy targets has created a conducive environment for wind power development. Despite being a mature market, Europe remains crucial for Vestas due to continuous re-powering efforts, offshore expansion, and the replacement of older turbines with more advanced models. Vestas' longstanding presence in Europe and its ability to adapt to changing regulations and technology advancements have contributed to its market leadership in the region. '''2. North America:''' The United States and Canada have seen substantial growth in wind energy installations over the years. Vestas has been a key player in this market, supplying wind turbines for both onshore and offshore projects. Favorable government policies, such as tax incentives and renewable energy mandates, have driven the growth of wind power in North America. North America represents a significant market for Vestas, offering opportunities for further growth. The ongoing shift towards renewable energy sources, driven by environmental concerns and energy security, has spurred investments in wind power. Vestas' strong project execution capabilities and reputation for delivering reliable turbines have positioned the company well in this competitive market. '''3. Latin America:''' Latin America is witnessing a growing interest in wind energy as countries seek to diversify their energy mix and reduce dependence on fossil fuels. Brazil, Mexico, and Argentina have emerged as key markets for wind power installations, attracting investments from major players like Vestas. Vestas' expansion in Latin America aligns with the region's increasing focus on sustainable energy solutions. As Latin American countries continue to promote renewable energy through auctions and incentives, Vestas' technological expertise and experience in developing wind projects offer a competitive advantage. Strategic investments in this region can provide Vestas with substantial growth opportunities in the coming years. '''4. Asia-Pacific:''' The Asia-Pacific region, particularly China and India, is witnessing rapid growth in the wind energy sector. Factors such as increasing urbanisation, industrialisation, and concerns over air pollution have driven the demand for cleaner energy sources. Vestas has recognised the immense potential of the Asia-Pacific market and has been actively pursuing opportunities in China and India. The region's ambitious renewable energy targets and favourable policies have attracted major investments in wind power infrastructure. Vestas' continued focus on localisation, partnerships with local suppliers, and adapting to regional regulations will be crucial in maintaining a competitive edge in this dynamic market. '''5. Rest of the World:''' Vestas also has a presence in various other markets across the globe, including Africa and the Middle East. These regions offer untapped potential for wind energy development, driven by increasing energy demands and a desire to reduce reliance on fossil fuels. While the Rest of the World markets might not be as mature as Europe and North America, they present exciting growth opportunities for Vestas. The company's global experience and track record in diverse environments give it an advantage in expanding its reach in emerging wind energy markets. As these regions prioritise sustainability and energy security, Vestas' presence and technological expertise can play a pivotal role in meeting their renewable energy goals. Overall, Vestas Wind Systems' strategic focus on key markets aligns with the global shift towards renewable energy and sustainability. The company's established market presence, continuous innovation, and commitment to delivering reliable and efficient wind turbines position it as a leading player in the wind energy industry worldwide. However, the market dynamics are continually evolving, and competition remains fierce, necessitating Vestas to remain agile and adaptive in its market strategies. {| class="wikitable" |+ ! colspan="3" |Geographical Distribution of revenue |- ! !2022 !2021 |- !EMEA |7,826 |8,818 |- !Americas |5,111 |4,807 |- !Asia Pacific |1,549 |1,962 |- !Total !14,486 !15,587 |} '''Breakthrough in blade recycling''' Vestas, in collaboration with partners Aarhus University, Danish Technological Institute, Olin, and supported by Stena Recycling, has achieved a significant breakthrough in blade recycling. Turbine blades made with epoxy resin, which were previously challenging to recycle, can now be rendered circular without changing their design or composition. The novel chemical disassembly process breaks down epoxy resin into virgin-grade materials, paving the way for a circular economy for existing and future blades. With around 25,000 tonnes of blades reaching the end of their operational life annually by 2025, this solution offers a sustainable alternative to landfill disposal. As the process utilises widely available chemicals, industrialisation can occur efficiently and cost-effectively. A pilot project will initiate the operationalisation of the partnership and construction of new recycling facilities, leading to a scalable circular blade recycling solution. This breakthrough not only helps the wind industry but also opens possibilities for broader circular economy practices across different sectors. Vestas remains dedicated to driving sustainability through innovative collaboration with strategic partners. '''Issuing the first sustainability-linked bonds in Denmark''' Vestas achieved a significant milestone by issuing the first sustainability-linked bonds in Denmark, totalling EUR 1 billion. This ground-breaking initiative integrates sustainability with financial targets, reinforcing Vestas' commitment to environmental responsibility. The bonds' fixed rate is directly tied to the company's progress in three crucial areas: reducing carbon footprint in its operations , lowering carbon intensity in the supply chain, and increasing material efficiency. By openly sharing the full sustainability-linked bond framework on their corporate website, Vestas demonstrates transparency and accountability to stakeholders. This move enables investors and shareholders to actively engage with Vestas' efforts to minimise negative environmental impacts and promote sustainability. The innovative financing approach allows Vestas to accelerate the green transition while broadening its investor base and reducing execution risk. This bold step exemplifies Vestas' leadership in integrating sustainability into their business strategy and sets a clear path for other companies to follow suit.
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