Windicator: Good year for turbine manufacturers continues

WORLDWIDE: Wind-turbine manufacturers built on their strong first-quarter performance with another set of positive earnings figures for Q2.

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Four out of the five companies tracked by the Windicator posted increases in both revenues and profits. Only Germany's Nordex reported disappointing figures — although its half-year results were altogether more impressive. Analysts' views on the industry remain largely unchanged from last quarter, with three-quarters of all ratings either a "buy" or "hold".

Vestas raised its full-year profit margin forecast after posting strong second-quarter figures, revealing growing confidence among its management that the company's turnaround strategy is working.

The Danish manufacturer reported an increase in quarterly sales of 13.1% and a more-than seven-fold increase in operating profits (EBIT) from EUR 12 million ($15.7 million) in Q2 2013 to EUR 104 million in Q2 this year. This far exceeds analysts' expectations of an EBIT figure of EUR 63 million.

Vestas' Q2 net profit of EUR 94 million compared with a net loss of EUR 62 million in the second quarter of last year.

The company said it expected its full-year operating profit margin before special items of 6%, up from 3.5% in 2013. Its previous guidance was for a minimum of 5%.

Chief executive Anders Runevad was appointed a year ago after Vestas had issued a series of profit warnings.

Under his leadership, the manufacturer has shed more than 5,000 jobs, closed plants and sold unprofitable businesses in a far-reaching restructuring after overcapacity and intense competition hit the renewable-energy sector.

Vestas' share price gained 43.8% for the year to 2 September, down on its peak in June, when it was up 84.5% for the year.

In September analysts' views on the company had also dampened since the summer, with only 27.8% recommending a "buy" compared with 58.8% in June.

Spain's Gamesa published an impressive set of half-year results, including a 13.1% increase in sales and a doubling of profits over last year's first-half results to EUR 42 million.

The company did not publish separate quarterly figures for Q2, but a comparison of its H1 and Q1 reports reveals that sales in the second quarter rose by 10.2% and net profits were EUR 25 million.

The company's EBIT was up 26.1% for the first half of the year and 11.4% for the second quarter.

As with Vestas, cost-cutting played a key role in Gamesa's improved fortunes in addition to greater revenues.

The company ended H1 2014 with EUR 549 million of interest-bearing debt, 11% less than at the end of the same period last year.

The firm's EBIT margin rose from 5.9% to 6.5% over the same period. The reduction in debt was achieved despite an increase in working capital associated with a rising production volume.

Overall, production returned to levels that were last seen in H1 2012, but with 41% less debt.

Unlike Vestas, however, Gamesa's approval ratings among analysts continued to rise in the early part of the second half of the year.

At 2 September, one third of analysts tracked by Reuters rated the company's stock as a "buy", up from 23.5% the previous quarter. The company's stock had gained 24.7% for the year to 2 September, slightly down from its high for the year, reached in late August.

Nordex reported a fall in quarterly profits of 23% on the back of weaker-than-expected Q2 sales. Its consolidated profit was EUR 7.4 million, down from EUR 9.6 million in Q2 2013 as quarterly revenues fell by 2.3% and order intake dropped 32%. However, EBIT was up by just under 2%, indicating that efforts to bring down costs are taking effect.

The German company's figures for the first half as a whole were more impressive, with revenues up by 13.2% and EBIT up by 146%.

Nordex's H1 consolidated EBIT was up 147%, while its consolidated net profit of EUR 16.5 million represents a considerable increase on the previous year's H1 figure of EUR 1.2 million.

With the EMEA business remaining stable, the company's growth was materially driven by its successes in new markets in Latin America and Asia. Sales in the Americas in particular rose at a high three-digit rate. The company reaffirmed its 2014 sales outlook in a range of EUR 1.5-1.6 billion, EBIT margin of 4-5% and order intake of up to EUR 1.7 billion.

Shares in Nordex fell upon publication of the half-yearly report in mid-August before recovering slightly over subsequent weeks. At 2 September, the stock was up nearly 50% for the year, with analysts' views on the company remaining largely unchanged.

Suzlon posted strong results for a second consecutive quarter, providing further evidence that the Indian company is getting back on track after enduring a torrid few years.

Revenues were up almost 20% and operating losses were slashed from INR 4.7 billion ($77 million) to INR 930 million. The company's Q2 net loss of INR 7.5 billion was down from its INR 10.6 billion net loss in the same period last year.

On the back of the results, chairman Tulsi Tanti predicted that the company will return to profit by next March after completing its debt reorganisation programme. In 2012 Suzlon was responsible for India's biggest-ever convertible bond default of $209 million, and at the end of last year the company's ongoing difficulties prompted its auditors to raise red flags over its ability to generate adequate cash flows to support operations.

Investors have been buoyed by the improving picture at Suzlon: at 2 September, the company's stock was up 127.8% for the year, the highest rise in value registered among the five listed firms followed by the Windicator.

However, Tanti's projection that the company's debt restructuring programme will be completed by March may be too optimistic, according to an analyst quoted by Bloomberg. Antoine Bourgault, the head of credit research at ISM Capital in London, said that even if Suzlon carries out its plan to clear $1.5 billion of the company's domestic liabilities, it would still need to repay about $1.3 billion in overseas obligations, including the equity-linked notes issued in July.

Goldwind's half-year figures revealed a more-than three-fold increase in net profits as orders surged and margins improved. Its H1 revenue of CNY 4.4 billion ($716 million) compared with CNY 3.2 billion for the first half of 2013, with cost of sales at CNY 3.1 billion and CNY 2.6 billion respectively — an improvement in gross profit margin from 18.5% to 30.3%.

Like Gamesa, Goldwind did not publish separate quarterly figures. However, a simple comparison of its H1 and Q1 figures shows that Q2 revenues were up 32.3% and net profits were CNY 293.8 million — almost five times as much as last year's CNY 60.2 million. By 21 August the company's share price had gained 23.1% for the year and analysts remained bullish about the stock, with 61.1% rating it as a "buy".

With four out of the five wind turbine manufacturers tracked by the Windicator posting positive results in H1 2014, the mood remains upbeat. But there have been disappointments: India has added less than 1.5GW so far this year, and the US a mere 850MW. On the plus side, the pipeline looks sizeable, and offshore has grown by a healthy 11%.

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