Vestas Wind Systems A/S
Interim Financial report – First Quarter 2021 Page 14 of 30
Classification: Public
strategy cycle and review where we discuss, adjust and
optimise our strategy based on market changes and
future scenarios. The yearly cycle ensures close
alignment on strategic priorities between the Board of
Directors and Executive Management, providing the
organisation with a strong focus and ensuring clear
direction for all of our colleagues around the world.
In 2020, our key strategic priorities included among
others the following ‘Must Win Battles’:
· Modularisation: Modularisation is both a tool and a
mindset. It will guide Vestas’ continued
transformation to meet the future demand for wind
energy and customer requirements – onshore as well
as offshore. In this way, modularisation combines
customisation and standardisation, making it
possible for us to serve broad market requirements
at competitive costs. Our platforms have served us
well until now, but the increasing number of variants
has increased the competitive pressure; our
response is continued standardization and cost-out,
without compromising on providing the solutions our
customers need. To succeed, we must remain
disciplined by investing in the right initiatives, while
discontinuing projects that look unlikely to provide the
returns we originally expected. As an example, in
April 2020 we discontinued the development of a
specific aspect of our technology programme.
· Quality: New product introductions, accelerated cost-
out and high activity levels have challenged
production ramp-ups and delivery plans, which in turn
has put pressure on the entire Vestas value chain,
including our quality. As a result, we are now seeing
higher warranty provisions and consumption due to
increased rework and delays in the launch and
execution of new products, which reduces our
profitability. Addressing these challenges and
enforcing a strong quality culture across the value
chain is a strategic priority for Vestas. Our aim is to
ensure issues are contained and solved close to their
origin, while providing best-in-class quality for future
customer solutions.
· Talent & Leadership: Vestas’ growth ambitions
require us to have the right employees with the right
capabilities. We need to attract, recruit, develop, and
retain business-critical talents, not only in established
markets but in new markets where the Vestas brand
may not be so well known. To fulfil our strategy, we
therefore must build a strong talent pipeline, improve
leadership capabilities, and increase diversity to
foster sustainable success and growth. We already
have around 30,000 skilled and dedicated
employees, but we are on a journey and we must do
even more to be successful in the future – especially
in terms of diversity and succession.
1
Source: Wood Mackenzie: Market Outlook Update Q4/2020. December 2020.
Long-term financial ambitions
Wind power has outcompeted fossil fuel alternatives in
most parts of the world, volumes in the global wind
turbine market are good, and the prospects for the
coming years promising, with wind power’s expected
central role in the electrification of societies, industries
and mobility systems and forecasts of average annual
growth of wind power capacity of 8 percent towards
2030.
1
At the same time, the wind power industry has
seen consolidation, giving way for a more stable
competitive environment. The profitability, however, is
still not at a satisfactory level, and hence this needs to be
a focus area for wind turbine manufacturers in the
coming years.
Ambitions for the three business areas
Onshore
The demand for onshore wind power globally is expected
to remain stable or grow slightly from the current high
level the next two-to-three years. After that, a new phase
of growth is expected, driven by new policies, increased
electrification, and corporate ambitions and activities.
Adding to that, Vestas expects to see increasing
contributions from its development activities.
On this background, Vestas maintains its long-term
ambition for the onshore wind power segment to grow
faster than the market and be market leader in revenue.
Offshore
The projections for the offshore market suggest a
development in three phases for Vestas’ newly acquired
offshore segment. Based on the order backlog, Vestas
will see a couple of years with high activity levels and
solid financial performance. Then, from 2023, the
company expects to see a decline in activity towards
2025. These first two phases will be under the influence
of heavy investments both in the organisation, supply
chain, and technology. By 2025, when a steep increase
in annual offshore installations is expected, and Vestas’
new platform will be gaining traction in the market,
Vestas aims to be a leading player in offshore wind
power.
Based on these assumptions, Vestas has an ambition to
achieve revenue in the offshore segment of EUR +3bn
by 2025, with an EBIT margin on par with the Group's
overall margin.
Service
The wind power service market is expected to continue
growth at the current rate, and Vestas maintains its
ambitions for the long-term for the Service revenue to
grow faster than the market. The Service EBIT margin is
expected at a level of around 25 percent in the coming
years, accounting for the integration of the offshore
business, which currently generates lower margins than
onshore.