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Windicator: Financial analysis

The first five months of 2012 brought no respite for wind-turbine manufacturers as investor sentiment towards the sector continued to decline. Two leading European companies, Vestas and Gamesa, had lost around half their stock-market value by the end of May, while a third, Nordex, saw its value decline by more than a quarter. In Asia, Suzlon and Goldwind fared a bit better, with the former's stock gaining in value and the latter's suffering a comparatively minor decline.

Analysts' views on the sector have hardly changed. At the beginning of June, just 17.3% of all recommendations for wind power stocks were "buys", with 42.3% "holds" and 40.4% "sells". This compares to figures of 20.3%, 38.1% and 41.5% at the end of February.

The results confirm what most people in the industry already knew: the golden period when the wind-power sector was the darling of investors is over - at least for now. Overcapacity, rising costs and significant cutbacks in government support for wind-power projects have left investors with very few reasons to be optimistic about the sector in the short to medium term.

Denmark's Vestas, the world's biggest wind turbine maker, posted a bigger than expected first-quarter loss amid delayed deliveries and rising costs. Although the company's revenues for the quarter were 4.2% up on the same period in 2011, it posted an earnings before interest and taxes (EBIT) loss of EUR245 million, including an unexpected warranty provision of EUR41 million. Its overall net loss for the quarter was EUR162 million, almost double the loss of EUR85 million it posted for Q1 2011.

The figures indicate that Vestas' senior management still has much to do to turn around the flagging firm, which was recently hit by two profit warnings in just three months - in late October and early January - resulting in an overhaul of senior management. The changes do not appear to have cut much ice with investors: over the first five months of the year, Vestas' share price declined by 45.8%. The looming expiry of the US production tax credit for wind at the end of this year is another cloud over 2013, and Vestas has said it would decide in the third quarter on the future of its US operations.

Gamesa reported a net loss for the quarter of EUR21 million, despite achieving a 32.8% increase in sales to EUR777 million. The loss compares to a net profit of EUR13 million for the corresponding period last year. The company posted a first quarter EBIT loss of EUR5 million against a gain of EUR28 million in the first quarter of 2011.

"The macroeconomic and industry situation, growing price competition - mainly in China - and the costs of implementing new platforms worldwide had a temporary impact on group profitability," Gamesa said in a statement. However, the company insisted that it is still in line to reach its guidance and show a profit and a positive free cash-flow in 2012.

Gamesa lost more than half its value on the stock market over the first five months of the year. Some 32% of analysts currently rate Gamesa as a "buy", 40% as a "hold" and 28% as a "sell".

Nordex also reported increased sales, of EUR198.3 million compared to EUR183.1 million for the first quarter of 2011. However, like Vestas and Gamesa it was unable to turn a boost in revenue into strong performance further down the balance sheet, where it reported an operating loss of EUR9 million compared to an operating profit of EUR0.4 million in the first quarter of 2011. Net income figures were not available as Windpower Monthly went to press.

The company said that operating profit was "burdened by below-average capacity utilisation and lower margins on projects". In a letter to shareholders published alongside the results, chief executive Jurgen Zeschky defended the firm's decision to abandon its offshore business, which has attracted criticism. "This step was primarily motivated by our aim of channelling all our resources into our core onshore business and minimising strategic and operational risks," said Zeschky.

Nordex lost a quarter of its stock market value for the year to 25 May. However, analyst sentiment towards the German company has shown a slight improvement: at the beginning of March, 60% were recommending that investors sell Nordex stocks; by the end of May, this had fallen to 35.7%.

Suzlon posted a January-March net loss of INR 3 billion ($53.7 million) compared to a net profit of INR 2.1 billion for the same quarter a year earlier. The slump in profitability came despite only a 7.6% decline in sales compared with 2011, with most of the hit down to increased costs. Finance costs alone climbed nearly 17% to INR 4.2 billion in January-March, compared to INR 3.6 billion over the first three months of 2011.

The company's share price rose 9.8% from the beginning of the year to 30 May, but the apparent optimism among investors was not shared by analysts. In early March, 28.6% recommended Suzlon's stock as a "buy", but by the end of May this figure had fallen to 16.7%.

Reflecting on the company's priorities for the new fiscal year, which for Suzlon began on 1 April, Kirti Vagadia, group chief financial officer, said: "Our key priorities as a company in fiscal year (20)13 are: addressing our near-term repayment obligations, balancing our debt appropriately across the group, reducing our interest burden, reducing our working capital intensity and strengthening our balance sheet. I am confident that our improved business situation is sustainable and that we will realise significant growth over the fiscal (year)."

Echoing Suzlon, China's Goldwind reported a relatively modest loss of revenues of 8.6% on Q1 2011, but experienced much sharper pain further down the balance sheet, where it reported a decline in profits of about 97%. Goldwind's operating costs rose by 11.4% compared with the same period in 2011.

Goldwind's share price fell by 4.6% for the year to 30 May, while analyst sentiment towards the company has changed little over the past few months, with 50% recommending a "sell".

The company has reiterated its determination to expand overseas into developed markets, such as the US and Australia, and emerging markets in Africa, South America and Asia.

VESTAS
Revenues +4.2%
EBIT -255.3%
Q1 2012 compared with Q1 2011
Stock price -45.8%
Change Jan-May 2012
Q1 profit/loss -$202.0m

NORDEX
Revenues +8.3%
EBIT -2340.0%
Q1 2012 compared with Q1 2011
Stock price -26.3%
Change Jan-May 2012
Q1 profit/loss n/a

GAMESA*
Revenues +32.8%
EBIT -117.7%
Q1 2012 compared with Q1 2011
Stock price -53.7%
Change Jan-May 2012
Q1 profit/loss -$26.2m
*Wind turbine division only

SUZLON
Revenues -7.6%
EBIT -75.5%
Q1 2012 compared with Q1 2011
Stock price +9.8%
Change Jan-May 2012
Q1 profit/loss* -$53.7m
*Jan-Mar 2012, or Suzlon corporate Q4

REPOWER
Revenues n/a
EBIT n/a
Q1 2012 compared with Q1 2011
Stock price -2.9%
Change Jan-May 2012
Q1 profit/loss n/a

GOLDWIND
Revenues -8.6%
EBIT -108.2%
Q1 2012 compared with Q1 2011
Stock price -4.6%
Change Jan-May 2012
Q1 profit/loss +$1.07m

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