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Vestas fears earnings to decline on price pressure
November 11, 2017
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COPENHAGEN: Vestas expects lower future earnings and possible subsidy cut that could hit US sales, it warned, sending shares in the world’s largest wind turbine maker tumbling by nearly 20 per cent.

The Danish company’s CEO, Anders Runevad, said the industry is having to contend with intensifying competition and falling profitability, echoing similar comments from rivals siemens Gamesa and Nordex, share in which have plunged by as much as two thirds this year.

The changing dynamics in the global windpower industry are largely down to governments from Europe to Latin America halting tariff payments and turning to competitive tenders, putting downward pressure on prices throughout the supply chain

“Vestas has steered around the price pressure that competitors have talked about for the last six months. But now the CEO confirms that it’s also hitting them,” said Casper Blom, analyst at Nordic investment bank ABG Sundal Collier.

Of particular concern to the company is the proposed U.S. tax bill that, if adopted in its current form, would make renewable energy projects more expensive in world’s second-biggest market - the market to which Vestas is most exposed.

Suppliers in the United States have relied on production tax credits (PTC) agreed in 2015 worth 2.4 cents per kilowatt-hour (kWh). The proposed bill would cut that to 1.5 cents per kWh.

Vestas finance chief Marika Frederiksson said that orders expected this year, which would qualify for tax credits under the current scheme, could be at risk if the bill goes through in its existing form.

She declined to quantify the potential hit, saying this remains highly speculative.

“It’s pretty clear that this is not very positive. But talking to customers, talking to people who definitely know more than I do, it’s very unlikely that it (the bill) will come through as it has been proposed,” Frederiksson told Reuters.

Vestas said it expects 2017 sales of 9.5 billion to 10.25 billion euros ($11.05 billion to $11.92 billion), compared with a previous forecast of 9.25 billion to 10.25 billion euros, disappointing some analysts who had expected an upward revision.

Shares in the company were down 19 per cent at 427 Danish crowns at 1135 GMT, their lowest level since December 2016.

Until this month Vestas shares had achieved a twentyfold increase since 2012, when uncertainty over political support in the United States also dogged the wind industry.

Vestas also trimmed its 2017 EBIT margin forecast to 12-13 per cent from 12-14 per cent, partly due to increased competition.

Order intake in the third quarter came with an average selling price of 0.80 euros per megawatt, compared with the 0.86 expected by analysts and 0.81 achieved in the second quarter.

Reuters

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