Danish wind turbine OEM Vestas has narrowed its guidance for 2019 revenue and pre-tax (Ebit) margin, but is stepping up planned investments, as revenue and earnings decreased during the second quarter.

The group posted a second quarter net profit of €90m ($100.34m), less than half of the €184m still seen in the same period last year.

“Prices remained stable in the quarter, but further increases in tariffs, raw material prices and transport costs, continue to increase execution costs, causing our gross margin to decline compared to the same period last year,” said newly-installed chief executive Henrik Andersen.

“To finish the year as strongly as possible and prepare for high activity levels in 2020, we remain focused on executing our strategy and delivering an extraordinarily busy second half of 2019.”

Vestas knew that tariffs would have an effect of about 1.5% on production costs, chief financial officer Marika Fredriksson said, adding the company has been good at mitigating additional costs. One remedy the company has against tariffs is to re-route its supplies, thanks to its global footprint, she said.

In part, that can add to the company's transport costs, however, she acknowledged.

The manufacturer narrowed its guidance for revenue for the full year to a range between €11bn ($12.27bn) and €12.25bn, compared to €10.75bn-12.25bn previously expected.

Yet, the OEM also said it now expects a margin on earnings before interest and taxes (Ebit) before special items of 8-9%, instead of a wider Ebit margin of 8-10% as previously seen.

Despite the somewhat more cautious guidance, Vestas said it now expects total investments in 2019 to reach approximately €900m, instead of the €800m expected previously.

Such high investments should not necessarily be expected going forward, chief financial officer Marika Fredriksson added. In a normal year, investments would be in the €400-700m range, she said.

The higher figure is to cater for new products (ie. EnVentus) as well as capacity and planning for the second quarter of this year and a generally high order intake, Andersen said during a conference call.

The company said its second quarter revenue fell 6% from the year-earlier period to €2.12bn, while its Ebit before special items went down by €131m to €128m.

The second quarter Ebit margin was 6.0%, down from 11.5% in the same quarter in 2018.Earnings before interest, taxes, depreciation and amortisation (Ebitda) before special items fell to €255m, from €369m in the second quarter of 2018.

On the upside, Vestas had a record wind turbine order intake of 5.7GW in the second quarter of 2019 (up from an order intake of 3.8GW in the second quarter last year), pushing its wind turbine order backlog up to €15.9bn. On top of that, the OEM had service agreements with an expected future revenue of €15.6bn.

“Based on these strong sales results, our order backlog soared by €8.5bn year-over-year to an all-time high of €31bn, again demonstrating our global leadership in a highly competitive market,” Andersen said.

“Together with our offshore business’ increased profits, the first half of 2019 highlights the complementarity of our business model’s three main areas, creating a great long-term outlook for Vestas.”

Net profit at offshore wind turbine maker MHI Vestas, owned half by Vestas and half by Japan’s Mitsubishi Heavy Industries, stood at €22m, an underlying improvement of €49m on a year-on-year basis (MHI Vestas incurred a loss of €27m in the second quarter of 2018).

Offshore revenue jumped to €534m in the second quarter of 2019, from a mere €26m a year earlier.

That MHI Vestas business is finally kicking off was also seen by its swollen pipeline. The offshore OEM now has a pipeline of 3GW of projects under construction or with unconditional orders, and a further 2.2GW of conditional orders such as preferred supplier agreements.

UPDATES to add more financial detail, further CEO and CFO comment