Vestas has narrowed its financial outlook for 2024 with an EBIT margin before special items to 4-5%, down from 4-6%, based on adjustments to planned costs in its Service segment.
The turbine manufacturer also decreased its forecasted revenue for 2024 to €16.5bn-17.5bn, from €16bn-18bn.
Vestas said that inflation indexation remains a key mechanism to protect profitability in the order backlog.
However, adjustments to planned costs are impacting current profitability in Vestas’ Service segment.
As a result of this adjustment, for second quarter 2024, the Group EBIT margin before special items will amount to 5.6% with revenue at €3.3bn, according to preliminary numbers.
Due to percentage-of-completion (POC) accounting, the adjustment to planned costs in Service affects EBIT in the second quarter of 2024 with a negative accounting effect of around €300m.
Preliminary Service EBIT before special items for the quarter is a loss of €107m.
Vestas said in a statement: “Our Service business remains a highly profitable segment.
“Disregarding the negative adjustment in second quarter 2024, our profitability is on par with recent quarters, and we expect it to continue to stay on that level in the future with an upward trajectory.
“The adjustment has no significant effect on the value of the Service order backlog (preliminary figure Q2 2024: €34.9bn) or adjusted free cash flow (preliminary figure Q2 2024: €0.5bn).”
Vestas added that the adjustment in Service is made on the background of a combination of sustained inflation within specific inflation components, indirect effects of increased repairs and upgrades, as well as operational inefficiencies, partly offset by expected future efficiency achievements and cost-out initiatives.
In addition, the Power Solutions segment, the turnaround is on track with an EBIT margin improvement of almost 8% year-on-year, and a quarterly order intake of 3.6GW, the board reported.
Although the momentum and results in Power Solutions are ahead of schedule, the lower-than-expected profitability in Service results in the narrowing of full-year outlook on Group revenue and EBIT margin, they added.
Vestas now expect the Service segment to generate EBIT before special items of around €500m (previously €800m-880m).