Analysts wrong and shares rise -- Vestas annual report

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With the publication of its 2002 annual accounts and budget for 2003, Vestas reversed the general pessimism which has pervaded the Danish wind turbine industry for the past year. Investor doubts had led to falling share prices and until recently Vestas, NEG Micon and Nordex could have been taken over by an interested purchaser for just 10% of the value of the companies when at their highest two-and-a-half years ago. Last month, however, DKK 1.6 billion (EUR 215.4 million) was returned to shareholders as stock prices rose on the back of confident market projections by Vestas' boss Svend Sigaard.

Despite lowering its expectations several times during the year, Vestas achieved its originally budgeted turnover for 2002 of EUR 1.4 million and retains its expectations for growth of 30% in 2003. The positive news contradicted negative predictions from analysts that the company would be announcing more bad news at its annual meeting. Share prices rose by 50% over the following 24 hours. The good news spread to NEG Micon, also traded on the Copenhagen stock exchange, and to Nordex, traded on the Frankfurt exchange, but with a major manufacturing facility in Denmark. The downward drift of their shares was reversed, but not as strongly as that of Vestas.

Vestas' turnover increased from EUR 1.3 billion to EUR 1.4 billion, but earnings before interest and tax (EBIT) fell from EUR 143 million to EUR 74 million, a direct consequence of the slow-down of the US market in which Vestas had a 42% market share in 2002. The weakening dollar, falling value of energy companies and more difficult financing conditions all affected Vestas' sales.

bright outlook

The outlook for the future is positive, according to Vestas. It is predicting 2003 earnings of EUR 1.7-1.8 billion and an EBIT margin of around 8%. Market developments in the US, however, and the dollar exchange rate could change that picture, warns Vestas. "The development of markets outside the United States is expected to be very positive," it adds.

The company stresses that the seasonal fluctuations of the wind market mean that only 30-35% of its turnover for the year will be achieved within the first six months. The desire to make optimal use of available production capacity means, however, that manufacturing will be spread over the entire year, with stocks built up in the first six months, ruling out any profit in that period.

After weighing up its options in Spain, Vestas is buying an existing turbine manufacturer to regain entry to the market, rather than starting from scratch. It is declining to confirm that the target is Made, which major utility Endesa put up for sale last year. The purchase should be complete by July, says Vestas.

technology support

As part of the divorce agreement between Vestas and Gamesa following their split in December 2001, Vestas may not compete with Gamesa on its home market until next year. Vestas agreed to provide technology support to Gamesa's Eólica's 660 kW and 850 kW turbines until the end of 2002 and to Gamesa's megawatt scale turbines until the end of this year. Gamesa turbines are based on Vestas technology.

Rumours in the Spanish industry report that Gamesa has made a competing bid for Made. Prior to reports of Vestas' offer, NEG Micon and GE Wind were widely considered to be front runners in the bidding.

Within days of setting its sights for 2003, Vestas announced it was rationalising its product line as a result of dwindling market demand for kilowatt-scale turbines and increasing demand for megawatt scale technology, particularly in Italy and Ireland "and other European markets." In practice this will mean transferring workers from kilowatt to megawatt machines at its Scottish factory and firing about 250 employees on the blade and control system production lines in Denmark.

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