Windicator: Companies' tough measures starting to show dividents

Wind turbine manufacturers are bracing themselves for tough times ahead with a number of measures designed to strengthen their business models.

by Nick Loney 1 April 2013

Asset write-downs and debt restructuring programmes were a dominant theme as firms published their last set of results for 2012.

Wind companies still have major hurdles to overcome despite ongoing growth in the global wind market. The industry is suffering from manufacturing overcapacity, falling subsidies and uncertainty in some wind-power sectors.

Vestas warned of a difficult 2013 as the struggling Danish manufacturer downgraded its forecast for deliveries for the year. The company said it "expects shipments of 4-5GW" this year, down from its previous forecast of around 5GW. The news came as it emerged that Vestas has lost its place as the global leader in wind turbines to General Electric. According to a report by BTM Consult, it was the first time since 2000 that the Danish manufacturer dropped from the top spot.

Vestas' Q4 2012 revenues were up 23.2% on a year earlier while its operating income more than trebled from EUR 46 million ($60.2 million) to EUR 155 million. Free cash flow was up 40% to EUR 416 million for the quarter, but 2012 as a whole saw an outflow of EUR 359 million. Vestas posted a net loss of EUR 618 million for the quarter following asset write-downs of more than EUR 500 million.

Despite the air of gloom surrounding the company, Vestas' share price rose 31.8% for the year until 11 March. Analysts have become slightly more optimistic about the company's stock, with the percentage recommending a "buy" rising to 23.8% from 13.0% three months ago. Some 28.6% of analysts are currently recommending a "hold", down from 39.1% in early December, while just under half are recommending a "sell" - unchanged from last quarter.

Spanish rival Gamesa said it hoped a EUR 600 million write-down in its full-year 2012 results would herald the return of profitability at the company. The "balance-sheet alignment" pushed group losses to EUR 592 million for the quarter and EUR 659 million for the year as a whole. Its Q4 revenues and operating profit were down 45.8% and 79.6% from a year earlier.

"Very few of these write-downs are cash-related," CEO Ignacio Martin said. "Most are accounting issues. It means that the balance sheet of Gamesa when looking to the future is a very solid one." In October Gamesa announced a programme to cut 1,800 jobs - 20% of the workforce - by the end of the first quarter. The company intends to close more than a third of its offices, reduce debt and expand its turbine-manufacturing unit under a strategy extending to 2015.

Gamesa's stock surged on news of the write-down and was up 33.3% for the year to 11 March. Flora Trindade, an analyst at Banco BPI, says the balance sheet clean-up "undoubtedly puts Gamesa in a better position to face the industry's challenges". However, the analyst community as a whole seemed less convinced, with only 15.8% of those tracked by �u�X��ʘ�� recommending a "buy", down from 23.8% in early December. The number of "hold" recommendations remained the same, while there was a slight rise in the number of "sells" to 63.2%.

Nordex did not publish quarterly results but did release provisional full-year figures ahead of the 25 March publication of its annual report. These revealed that the German firm's annual revenues rose 17.3% during 2012 to EUR 1.075 billion, with operating income (EBIT) before special items rising to EUR 14 million from an operating loss of EUR7.6 million last year. The Hamburg-based manufacturer said the top-line growth resulted primarily from strong business in Europe, the Middle East and Africa.

Sales across these regions grew by 28%.

However, the results also exposed a significant loss in EBIT after special items of EUR 61.1 million, more than double the company's equivalent loss of EUR 27 million during 2011. This was due to massive restructuring costs in China and the US, it said.

Nordex raised its sales outlook for 2013, forecasting revenues in the region of EUR 1.2-1.3 billion. Roughly 80% of this sales target is already covered by firm order backlog, it said. On the day the figures were announced, Nordex's stock rose 15% - its highest single-day increase in two years. For the year to 11 March, the stock was up 40.5%.

Suzlon's woes continued as it reported its biggest-ever quarterly net loss of INR 11.5 billion ($210.3 million). The Indian company, hit by liquidity problems, posted a net loss of just over INR 3 billion for the same period last year. Its quarterly revenues declined 19.5% to INR 40.4 billion from INR 50.6 billion.

Liquidity is at the heart of Suzlon's troubles. Despite its healthy order book, the company has been unable to invest more in the business and grow revenues because it has been pumping funds into servicing debt and paying interest costs. "We have faced a textbook conflict in allocation of resources between our business and our liabilities," says Suzlon chief financial officer Kirti Vagadia. "While we have made tremendous progress on the liability-management front, our business performance has been adversely hit due to our abnormal operating environment."

Vagadia says the approval of the company's corporate debt restructuring package in January was a "major step in the right direction". The move came after Suzlon defaulted on a repayment of foreign currency convertible bonds in October, worth around $220 million. Since then, Suzlon has been trying various methods of reining in its debt, including selling stock: in late February, its founders sold shares equal to a 6.19% stake in the company, worth $44.1 million.

On the day the sell-off was announced, Suzlon's share price tumbled 34% to a record low, reversing gains made in late January. On 11 March, its stock was down 14.3% for the year. Analysts remain bearish on the company's medium-term prospects, with 87.5% currently posting a "sell" rating. The rest posted "hold" ratings.

China's Goldwind had not published its Q4 results by the time �u�X��ʘ�� went to press. However, preliminary full-year results published on 27 February, ahead of the publication of its complete results, revealed that the company suffered a 11.83% fall in revenues and a 76% fall in net profits to CNY 153 million ($24.6 million).

Goldwind's problems reflect underlying challenges in the Chinese wind-turbine industry. Tightening regulations on wind installations and continued bottlenecks in grid connectivity are squeezing demand for turbines. Chairman and CEO Wu Gang admitted that the wind industry is still in a "period of adjustment" and re-emphasised the company's long-term strategy of expanding overseas to reduce its reliance on the problematic domestic market - something that it has failed to successfully do so far. Goldwind has only installed about 220MW outside China, with an additional 441MW in the pipeline, according to �u�X��ʘ�� Intelligence.

Goldwind's stock price rose 37.8% on the Hong Kong Stock Exchange from 1 January to 6 March. Analysts have warmed slightly to Goldwind, with 13.3% posting a "buy", 40% recommending a "hold" and 46.7% urging investors to sell the stock. Last quarter, there were no "buy" ratings. Shares gained after Goldwind revealed its preliminary results, likely because the news may not have been as bad as investors expected. Goldwind had issued guidance for a 50-100% write-down in profits, so the actual figure of 75% may have pleasantly surprised some.