Windicator: Results continue positive trend

WORLDWIDE: This year began in the same way that 2014 ended as wind turbine manufacturers posted another set of very strong quarterly results.

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Rising sales and the continued success of longer-term cost-reduction measures are combining to drive profits up across the industry. The surge of the US dollar against the euro and other European currencies, which has boosted European exports, is also having a decisive impact on financial performance.

The positive performance is boosting share prices, with the stocks of all five companies followed by the Windicator showing considerable increases in value.

Analysts are more positive about the sector than earlier in the year, with 59.7% of all recommendations now a "buy".

Danish giant Vestas raised forecasts by more than expected after record orders and a major surge in operating profits (EBIT). The company said it now expects a minimum €7.5 billion ($8.5 billion) of revenues this year, up from a previous forecast of at least €6.5 billion, with an operating margin of at least 8.5%, up from a minimum of 7% previously.

The move came after Vestas posted an 18.4% rise in revenues and a 97.5% rise in operating profits. This resulted in a first-quarter net profit of EUR56 million, up from just €2 million in Q1 2014. The firm's EBIT margin (EBIT/net revenue) rose from 3.1% to 5.2%, while return on invested capital surged from 15.2% to 43.8%.

Although analysts had expected higher forecasts, many expressed surprise at the extent of the upgrades. The company said two thirds of the increase in its sales forecast was due to the unexpectedly high level of orders, while a third was due to the surge of the US dollar against European currencies.

"It's very early in the year, and I hadn't expected for them to hike guidance so much," Michael Friis Jorgensen, an analyst at Danish financial services company Alm Brand, told Reuters in May. "It's not a one-off. They have already started strongly in the second quarter, and there are a lot of deals in the pipeline."

In March, Make Consulting's Global Wind Turbine OEM Market Share Analysis report revealed Vestas as the leading pure-play global wind turbine original equipment manufacturer in the world, and third leading manufacturer overall, behind multi-industrial turbine manufacturers Siemens and GE.

At 2 June, Vestas's stock had risen 41% year-to-date while analysts' views on the company's stock had improved slightly from earlier in the year, with 47% rating it a "buy" and 35% a "hold".

Spanish rival Gamesa said it had made a "solid start" to the year after recording a 43.1% increase in revenues and a 92.2% rise in EBIT before special items.

Its first-quarter net profit of €62 million compared with one of €17 million for the same period in 2014. Excluding a one-off impact of the formation of the Adwen offshore wind joint venture with Areva, underlying net profit was €44 million.

In addition to rising sales, Gamesa attributed the strong performance to ongoing optimisation of its variable expenses and the same positive currency effect cited by Vestas. It reported net financial debt of €125 million, down from €655 million in the first quarter of 2014, while its EBIT margin was 8%, up from 6% in the same period a year ago.

In a presentation to financial analysts, Gamesa again stressed its strong positions in some of the world's wind-power growth hotspots, including India and China. The Make Consulting report revealed that Gamesa is the leading wind-turbine manufacturer in India and Mexico, and second in Brazil.

The firm left its full-year guidance unchanged at sales of between 2.8GW and 3.1GW, bringing in revenues between €3.15 billion and €3.4 billion, with a margin before interest and tax (EBIT) of 8%.

Gamesa's stock had surged 80.4% for the year to 2 June, at which time 52.6% of analysts rated its stock as a "buy".

The pattern of strong results continued with German manufacturer Nordex, which posted a surge in first-quarter net profits of 62.6% to €14.8 million, up from €9.1 million a year ago.

The boost to profitability came on the back of increases in revenues and operating profits of 29.3% and 17.5% respectively. The latter was largely due to economies of scale and a below-average increase in structural costs. Nordex also cited the strong US dollar as another factor in performance.

Nordex's strong operating performance was reflected in an improvement in its balance sheet. The company's working capital ratio, which measures a firm's ability to meet its short-term liabilities - ie the ratio of current assets (cash, plus any assets that can reasonably be expected to be converted to cash within one year) to current liabilities (debts or obligations due within one year) - improved to -4.8% from -2.3% in Q1 2014, while free cash flow (operating cash minus capital expenditures) increased to €46.2 million from €14.8 million over the same period.

At 2 June Nordex's share price had risen 42.1%. Analysts were largely bullish on the company's prospects, with just under 60% recommending that investors buy the stock.

The most impressive results of the first quarter came from China's Goldwind, which announced a 390% —albeit unaudited — profit increase to CNY 249 million ($40.1 million). Revenues were up 78% to CNY 2.55 billion, the company said, attributing the growth to increases in wind-turbine deliveries and the growth capacity of the wind farms it already operates.

The firm forecast operating results in the first half of this year to grow between 200% and 250% on the same period of 2014.


Analysts are more positive about Goldwind than any other pure-play wind-turbine manufacturer, with more than 80% posting a "buy" rating for the company's stock, which had risen by 57.6% for the year to 2 June.

Suzlon was the only firm among those followed by the Windicator to post worse results than a year earlier. Revenues were down 25.9%, while an operating loss of INR 3.3 billion ($51.5 million) compared with an operating profit of INR 1.5 billion in the first quarter of 2014. Its net loss of INR 12.1 billion compared with an INR 6.0 billion loss in the equivalent period last year.

The poor performance was due in part to a provision for "impairment of goodwill" arising from the sale of Suzlon's German subsidiary Senvion, formerly Repower. Suzlon sold Senvion to US private-equity firm Centerbridge Partners in January for EUR1 billion, well below the EUR1.8 billion it paid for the company in 2011. Suzlon said that the proceeds from the sale would be primarily used for debt reduction.

Shares in the company fell upon publication of the results, but not by enough to offset previous gains, and remained up 42.3% for the year at the beginning of June. This was 27.8% lower than the peak reached on 18 March.

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