Windicator: 2012 comes to a disappointing close for turbine manufacturers

WORLWIDE: The third quarter brought wind-turbine manufacturers little relief from the bad news delivered in the first two. Four of the five companies tracked in the Windicator reported net losses for the period as the sector continued to face significant challenges.

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Between 1 January and 23 November, all companies were hit by significant falls in stock value, although the rate of decline slowed somewhat through the third quarter and into the fourth.

As in Q2, in several cases poor bottom-line performance came despite generally positive news further up the income statement. Vestas, Gamesa and Suzlon all reported increases in revenues over Q3 2011 alongside declines in net income. However, analyst sentiment towards the sector continues to decline. Just 11% of wind stock ratings were "buys" on 23 November, down from 12.4% at the end of August. Some 34.1% of all ratings were neutral (compared to 41.2%) and 54.9% were "sells" (up from 46.4%).

For the second consecutive quarter, the publication of Vestas' results was accompanied by news of job losses at the company. A further 2,000 redundancies were announced, which will reduce Vestas' overall workforce from 18,000 to 16,000 by the end of 2013. The cuts will mean Vestas has slashed its head count by nearly 30% since the end of 2011, when it employed 22,700. It said the move would enable it to create additional cost savings of more than €150 million on an annual basis, and by year-end 2013 it will have reduced costs by more than €400 million.

Anybody seeking to understand the reason for the cuts needed only to look at Vestas' Q3 results. Despite a healthy 48.7% increase in revenues over Q3 2011, the company posted an operating loss (Ebit) for the quarter of €140 million and a net loss of €175 million. It blamed the losses on write-downs following the closure of research-and-development facilities and reduced activity in India. By 23 November, Vestas' share price was down 56.4% for the year and analysts remained downbeat about its prospects, with only 13% recommending investors buy the company's stock, compared to 39.1% who were neutral and 47.8% who recommended a "sell".

Vestas was not alone in announcing job losses. In October, Gamesa revealed plans to cut 20% of its global workforce between now and Q1 2013 as part of a restructuring plan. The cuts will be mainly in China, the US and Europe, totalling around 1,800. Spain is likely to take the brunt of the European job losses, with 500 redundancies.

A month after announcing the redundancies, Gamesa published its Q3 figures, which included a slump in revenues of 10.2% and an operating loss of €26 million, compared to an operating profit of €21 million in Q3 last year. Its Q3 net loss of €34 million followed a net overall profit of €1 million in Q3 last year.

Reflecting on the first nine months of the year, Gamesa blamed a lower level of activity, pricing pressures and regulatory pressures in key markets such as India for the slump in performance. It insisted that its 2013-2015 business plan would enable it to "emerge stronger as a global leader in the wind industry, recovering and maintaining profitability, reinforcing the balance sheet, focusing on key market-growth segments, and providing competitive technological solutions".

Analysts remain to be convinced, with only 23.8% giving the company a favourable rating, the same percentage neutral and the remaining 52.4% rating it negative. One highlighted the reported decision of Spanish power company Iberdrola, which owns 19.6% of Gamesa, to reduce its investments in wind farms in coming months. As Iberdrola has no commitment to any minimal volume with Gamesa, this could put at risk 15-20% of Gamesa's sales, one analyst claimed. Over the year to 23 November, Gamesa's stock fell 48.7%, although this represented something of a recovery from late-July, when it was down 67.3% year-to-date.

India's Suzlon continues to face even greater challenges than either Vestas or Gamesa. Despite posting a 12.2% increase in revenues over the same quarter last year, it reported an operating loss of INR 3.0 billion ($53.7 million) and an overall net loss of INR 8.1 billion. Last year Suzlon reported a Q3 net profit of INR 480 million.

Chairman Tulsi Tanti blamed "macroeconomic headwinds and policy uncertainties in some key markets, internal challenges around liability management and sub-optimal capital allocation to business operations" for the performance. In October, Suzlon failed to repay $209 million of debt in India's largest ever convertible bond default. Shortly afterwards, the yield on the company's $175 million, 5% convertible debt due April 2016 reportedly surged to a record high of 32%.

Suzlon had been in talks with foreign currency convertible bond (FCCB) holders on various solutions for dues settlements. In the last week of October, the Suzlon Group initiated discussions with its senior secured lenders. It also launched plans to restructure its debt with a maturity period of ten years under its corporate debt restructuring mechanism, including a two-year moratorium on principal and interest payments on term debt.

"This is an important step towards stabilising our business by enhancing liquidity and injecting additional working capital. We believe this will help us to safeguard the interests of our key stakeholders, including customers and vendors," the company said. Suzlon's share price fell 16.9% for the year to November 23, at which point it was subject to no "buy" recommendations from analysts, with 16.7% neutral and 83.3% negative on the stock.

China's Goldwind fared little better than Suzlon, posting a fall in sales of 41.7% and a net loss of CNY 33.4 million ($5.6 million). The company attributed the profit decline to slower growth across the industry and a decrease in turbine prices. Wu Gang, Goldwind chairman and chief executive, still remained upbeat. "In the last three quarters, competition in domestic markets has remained fierce," he said. "To maintain our group's continuous competitive advantage, we have accelerated product research and development into our low-speed and ultra-low wind speed series while at the same time making steady improvements in all our offshore wind turbines."

However, analysts remain almost as pessimistic about Goldwind's medium-term prospects as they are about Suzlon's. On 23 November, none were recommending the stock for a "buy", instead dividing equally between "holds" and "sells". The company's stock fell 30.1% for the year to that date.

There was, however, better news from Nordex, which reported improved performance all the way down the income statement. The German manufacturer posted increased revenues and operating profits of 11.3% and 63.8% respectively, while its net profit of €7.7 million was more than double its Q3 2011 €3.4 million net gain. This followed three consecutive quarters of operating losses.

Over the first nine months of 2012 Nordex earned a substantial profit from its European division while losing money in Asia and breaking even in the US. The firm says several delayed contracts received in October and November pushed its new business above the level achieved in 2011 and thus ensured that the full-year sales target for 2012 would be achieved. Despite this, Nordex's stock price fell 26.9% from 1 January to 23 November, and analysts remained highly cautious about its medium-term prospects, with only 10% recommending investors buy the stock, 40% neutral and 50% advising a "sell".

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