Shares of Vestas, the world’s largest manufacturer of wind turbines, shot up 11 percent after the firm announced that orders, profits and revenue were all up in the third quarter compared to the same period last year.

This came despite warnings of ongoing trade issues, a slowdown in Asia and continued price pressures.

The value of its order backlog climbed to a record of €3.65 billion ($4.04 billion).

Group President and CEO Henrik Andersen said it was gratifying to see the nearly 4 gigawatts of orders placed during the last three months split across 20 markets.

“We have Finland, Greece, Turkey and France as main contributors to it, but it's really nice to see that that works across Europe,” he said on a call to analysts before pointing to the potential for more activity in Europe and beyond.

“We have an auction here in Poland...happening in Q4. Italy has announced a 5-gigawatt technology-neutral auction in 2021,” he said, adding that South Africa is developing a program comprising 1.5 gigawatts annually.

Headwinds in Asia-Pacific

Despite the strong showing, the company also said it expects to see trade tariffs weighing down profitability.

Marika Fredriksson, the company’s CFO, said an impact of 1 percent of revenue had already been increased to 1.5 percent, adding that there is no expectation of that declining in the near term. She also stated that fears around suppliers squeezing the company as a result of its increased order book are not valid, noting that heavy industry does not enjoy the same high demand that Vestas currently does.

Activity in the Asia-Pacific region was relatively muted for the company, with deliveries down 16 percent so far this year compared to the same period in 2018.

Asked about the weaker performance in Asia, Andersen said the company is being selective about the projects it works on.

“It has to create value for shareholders...[so] if we walk away from something, it's generally because either the price or the project margin was not sustainable for us.”

He pointed to strong prospects for new orders and said the firm is talking to policymakers and customers in China about a subsidy-free approach. He also expects India to ramp up to meet its wind power target of 140 gigawatts of installed capacity by 2030.

Services prove to be a bright spot

The firm’s services business provided several bright spots in Q3, with Andersen heralding the unit's “stellar performance.”

Competition and falling tender prices have put a squeeze on turbines, so the revenue from service contracts is valued very highly. Half of Vestas’ contracted future revenue is from service contracts and half is from turbine orders.

Building up service contracts was a key factor in Siemens Gamesa’s recent acquisition of Senvion, according to Shashi Barla, WoodMac’s principal analyst for global wind supply chain and technology.

Vestas added another 5 gigawatts' worth of services contracts, taking its tally to 91 gigawatts. The average duration of these contracts is now 18 years. It also secured 25 contracts for turbine upgrades.

Via its offshore partnership with Mitsubishi Heavy Industries, called MHI Vestas, the company flagged a pipeline of 6.2 gigawatts and won a contract for three turbines to be used in France's Groix and Belle-Ile floating wind project.

“It's not necessarily the 29-megawatt order that is the takeaway here; it’s the innovation that goes into it and...seeing the floating platform start [to work] offshore," said Andersen. "That's an important innovation and technology for us.”

Earlier this week, the developer of that floating wind project, Eolfi, was acquired by oil major Shell.


Are you attending Wind Europe Offshore 2019? Wood Mackenzie is hosting an invite-only offshore wind research briefing and breakfast on November 27th. Email [email protected] to express your interest in attending.