Stockholm (NordSIP) – Although the disruption to everyone’s life brought about by the last two years of the COVID-19 pandemic has made the headlines, the cost of the crisis for sustainable businesses is also not to be neglected. The transition from the pandemic to the Ukraine crisis has prolonged this pain and the effects are becoming apparent in the financial results of one of the energy transition’s leaders – Danish wind turbine manufacturer Vestas.
A Difficult Start to 2022
According to the Danish company’s preliminary annual results for last year, published at the start of 2022, “the wind power industry continues to be challenged by the current environment characterised by supply chain instability, which is causing significant cost inflation and delay in execution of projects.”
Five months later, and despite a 27% revenue increase to €2.485 billion, results from the first quarter of 2022 show that “profitability was heavily impacted”. Indeed, earnings before interest and taxes (EBIT) before special items decreased by €251 million to €329 million.
“In the quarter, we made one-time write-downs related to the Russian invasion of Ukraine and legacy offshore activities. To address the current business environment, we also made a strategic re-prioritisation of select markets and plans to adjust our manufacturing footprint, which together with the write-downs on Russia, Ukraine and Offshore impacted our results negatively. Based on these decisions and the uncertain business environment, we are adjusting our financial guidance for the full year. The growing energy crisis, however, also led to stronger political support for renewables to enhance energy independence and keep energy prices low, and we are strengthening our foundation to support governments and customers achieve these goals. Everyone at Vestas continues to do an outstanding job in executing on our strategic priorities in unprecedented and very unpredictable circumstances, and Executive Management wants to thank our customers, colleagues, and partners for their ongoing engagement and support,” Group President & CEO Henrik Andersen said.
Worse than Expected
Much as everyone else in the world, Vestas also failed to foresee the geopolitical crisis brought about by Russia’s invasion of Ukraine and how its transmission across commodity and stock markets would once again destabilise the global economy. However, the wind turbine manufacturer was not entirely caught by surprise.
Vestas had expected difficult economic environment and seen inflation rise over the horizon. “The supply chain instability caused by the pandemic and leading to increasing transportation and logistics costs, is expected to continue to impact the wind power industry throughout 2022. In addition, Vestas will experience increased impact from cost inflation within raw materials, wind turbine components and energy prices,” the company noted at the start of the year.
“It should be emphasised that there is greater uncertainty than usual around forecasts related to execution in 2022, and the outlook seeks to take into account the current situation and challenges,” Vestas warned in January 2022.
Elsewhere, concerns emerged that Vestas’ first-quarter results may be the latest development in a potentially emerging trend among the wider renewable energy market operators. Adding Vestas’ recent results to Siemens Gamesa’s losses and the difficulties of General Electric with its renewables business risks raising doubts about the profitability of wind turbine manufacturers.
