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Windicator: Cost-cutting measures are starting to pay off

Wind-turbine manufacturers continue to struggle to bring in sales, but some are making progress in restructuring their businesses and cutting costs, the latest set of quarterly figures reveal.

Four of the five listed companies tracked by Windpower Monthly posted declines in revenues and three announced net losses as the global headwinds facing the sector showed little sign of abating. However, there were indications that cost-cutting measures are beginning to take effect as four of the five firms announced improvements in operating performance.

Sentiment towards the sector also seems to be improving. The stock prices of all but one company have surged since the new year, while analysts have also become slightly more bullish, with the number of overall "buy" recommendations rising to 20% from 14.3% in early December.

It has been an eventful year so far for Denmark's Vestas, which discovered in February that it lost its global leadership of the wind-turbine industry to GE in 2012 after 12 years with the biggest share of annual installations. However, it emerged in early June that the company was staging a comeback after winning the most orders in May. In that month, market research and data unit Windpower Intelligence observed 409MW of Vestas contracts, a fall of more than 84MW on the previous month but enough for it to retake the top spot for May.

The company's first-quarter results revealed a wider net loss than forecast. It shrank to EUR 151 million ($198 million) from EUR162 million a year earlier, which compared to an average forecast of five analysts surveyed by Bloomberg for a net loss of EUR 84 million. Vestas' revenues were down slightly on the same period last year, at EUR 1.09 billion.

However, there were signs of encouragement as the firm halved its operating loss (EBIT) after special items to EUR 122 million from EUR 245 million last year. Its negative free cash flow of EUR 60 million was also a significant improvement on its negative free cash flow of EUR 295 million in Q1 2012. CEO Ditlev Engel said it was "not satisfactory" to remain lossmaking but heralded the EUR 235 million improvement to negative free cash flow of EUR60 million as a sign that Vestas' turnaround "is on track".

Shares in Vestas rose to an 18-month high on publication of the results and by the end of May had risen 136.5% for the year. Analysts' sentiment towards the company has also warmed, with 31.8% surveyed by Reuters rating the company a "buy", up from 23.8% in December.

Meanwhile, Spain's Gamesa, despite a 12.2% decline in revenues, returned to the black in Q1, posting a EUR 7 million net profit. This compares to a EUR 19 million loss for the same period in 2012. The firm said the return to profit was partly attributable to a 26% reduction in fixed costs over the year, recording a EUR 22 million operating profit compared to a EUR 14 million operating loss in Q1 2012.

Gamesa's share price rose 106.9% from the beginning of the year to May 31. However, analysts cooled slightly on the company over the same period: just 11.8% rated the company as a "buy", down from 15.8% in December. The percentages of "sell" recommendations rose from 63.2% to 70.6%.

Late in May the company received a boost with the news that it had secured a deal to deliver 230MW of turbines for Indian wind farms. Gamesa is providing 65 of its 2MW turbines to CLP Holdings' China Light & Power India unit and will maintain them for ten years. The company will also deliver 100MW of turbines to Greenko Group and the deal may be expanded by an additional 200MW.

Nordex's net loss of EUR 8.4 million for the quarter was 40% less than the previous year's net loss of EUR14 million. The improvement in bottom-line performance came on the back of a 30.6% increase in revenues and a fall in operating losses from EUR 9 million to EUR 0.6 million.

The German firm's strong performance for the period was underpinned by robust business in the core European region, which contributed 94% of sales. By contrast, business in America contracted by 57.6%, accounting for only 5% of consolidated sales.

Nordex's share price rose 96.3% in the five months to 31 May. At that time the company's stock was rated as a "buy" by 22.2% of analysts surveyed by Reuters, up from zero just a few months previously. The percentage of "hold" recommendations fell from 42.9% to 33.3%, while the percentage of analysts posting a "sell" recommendation declined from 52.1% to 44.4%.

Suzlon's Q1 net loss of INR 19.1 billion ($335.9 million) was its biggest ever quarterly deficit and represents a massive slump in performance over Q1 2012, when it lost INR 2.9 billion. A 36.3% decline in revenues hit performance hard, with significant further damage inflicted by the company making a provision of INR 11 billion for possible one-off, debt-related payments and to write down the value of assets. It was the Indian company's sixth straight quarterly net loss.

In a statement, the company blamed a combination of internal liability management challenges, a highly competitive global wind sector and the turbulent Indian market, which shrank by almost 50%.

"Breaking out of this cycle required a strategic shift on our part in order to preserve value and ensure the sustainability of our business in the long term," said Tulsi Tanti, the company's chairman.

"This meant that, over the fiscal year, the business was under-resourced, which contributed to what is a very poor result. However, we consider this to have been a necessary sacrifice and have made substantial and real progress in addressing our liabilities, as well as in improving our business efficiency," Tanti added.

Suzlon's share price fell 37.8% over the first five months of the year - the only stock of the five companies surveyed to decline in value. Analysts remain uniformly negative on the company's prospects: all seven of those tracked by Reuters rate the company as an "underperform" or "sell".

China's Goldwind posted a five-fold increase in Q1 net profits as cost cuts countered a 44% decline in revenues. Its net profit of CNY 32.4 million ($5.3 million dwarfed last year's CNY 6.2 million. The cost cuts helped to turn around an operating loss of CNY 24.5 million recorded last year into an operating profit of CNY 29.0 million this year.

In a company statement, Goldwind vice-president Ma Jinru said that Goldwind expects that its net profits for the first half of the year will be 0-50% higher than in the first half of 2012. He said the company plans to expand international co-operation and launch additional customised products for customers in order to enhance competitiveness.

Goldwind's stock price rose 56.7% for the year to May 31. Analysts remain cautious about the company's medium-term prospects, however, with just 20% rating the stock as a "buy".

Good news for Vestas, bleak for Suzlon

What analysts recently recommended for five wind majors' stock

analysts recommend

Upward trend slowly strengthens

History of analyst recommendations for majors' stocks combined

analysts trend

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