Vestas and Suzlon point to tough year

FINANCE: The first few months of 2011 saw turbine manufacturers struggle on against a backdrop of lower demand, increased capacity and corresponding deteriorating pricing power.

But the prospects for the rest of the year are slightly more encouraging, as the results from two global players confirm.

Danish financial services group Alm Brand Markets' analyst Michael Jorgensen, commenting on prospects for the main turbine manufacturers, said that "price pressure will remain in 2011, even though input prices are rising again".

In a brokers' note issued in February, finance company Unicredit said that "things will only get worse for the sector, given the capacity being added and with Asian players set to ramp up exports".

Overall, the total wind power market fell from 38.6GW in 2009 to 35.8GW in 2010, according to the Global Wind Energy Council.

Vestas, the world's biggest wind turbine manufacturer, posted a 25% increase in profits over the past year. Reported turnover for 2010 was EUR6.9 billion, an increase of 36% on 2009, although this is partly influenced by a change of accounting practice which has moved EUR1,557 million of turnover and EUR605 million of profit from 2009 into 2010.

That growth was helped by strong demand for turbines for offshore wind farms around the coast of Britain, notably Vattenfall's 300MW Thanet project, which Vestas helped supply with 100 V90 units.

Vestas CEO Ditlev Engel warned that the United Kingdom was still failing to take full advantage of the wind resources at its disposal and questioned whether all the offshore wind projects planned for the North Sea would actually be built.

With net income for 2010 of EUR156 million - compared with EUR125 million for the previous 12 months - and with a tripling of orders in 2010 to 8,673MW of turbines, analysts saw Vestas's results as broadly in line with expectations.

Unicredit says that in a buyers' market Vestas, like its peers, will struggle in 2011.

With margins under pressure, it predicts "flat earnings at best".

During 2010 Vestas announced it was laying off 3,000 European employees because of challenging trading conditions. It expects its global workforce to be 20,800 by mid-2011, down from 23,250 at end-2010.

Vestas' outlook for 2011 is a turnover of EUR7 billion with an EBIT margin of 7%.

Suzlon, the world's third largest wind turbine supplier, reported its earnings for the quarter ended December 21, 2010 with a record order book worth $7.3 billion and group revenues of $968 million.

Key orders were in India, with a record 1GW deal with Caparo Energy India worth $1.28 billion, and others in Brazil, Canada and Belgium. Its Repower subsidiary recorded EUR2.9 billion of orders, up 11% on the previous year (see interview on page 41).

Tulsi Tanti, chairman and MD of Suzlon, said: "Emerging, offshore and key mature markets are showing sustained momentum," adding that its US order book, representing around 5GW, was "one of the best in the industry".

He added that, despite a challenging business environment, "our competitive position remains strong ... spanning 32 countries and 15GW of operating wind capacity worldwide".

The 2011 calendar will see a strong push by Suzlon to expand its operations in China, reflecting the fact that it is the first international wind turbine manufacturer in China with a Chinese CEO.

Results from other leading turbine manufacturers were either unavailable or buried within wider company reports.

Vestas reported results (EUR millions)

2010 2009
Revenue 6,920 5,079
Gross profit 1,175 836
EBITDA 684 469
Operating profit (EBIT) 310 251
Profit for year 156 125
Earnings per share 0.8 0.6