Credit Research
19 November 2013
Credit Flash – HG Energy
Vestas – improved FCF guidance
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Recommendation: We stick to our hold recommendation on the VWSDC 15 issue on the back of the higher FY13 guidance and the upcoming JV, which will help Vestas strengthen its market position and benefit from synergies with Mitsubishi. This should help mitigate the negative effects from the tough environment for the wind industry. Event: Vestas (not rated) reported an unexpected loss in 3Q13 but greatly increased its FY13 guidance in terms of FCF and margin generation. Revenue in 3Q13 decreased to EUR 1.44bn (47% Europe and Africa; 42% Americas; 11% Asia Pacific) vs. EUR 2.0bn in 3Q12. However, this was compensated for by strong cost reductions, resulting in EBIT before special items of EUR 67mn vs. EUR 13mn last year. This translates into a reported EBIT margin of 4.6% vs. 0.7% in 3Q12 (FY12: 0.1%). The gross margin stood at 14.8% (3Q12: 10.2%; FY12: 11.0%). The net loss was reduced to EUR 87mn vs. EUR -175mn in 3Q12. In 3Q13, a total of EUR 64mn was booked as special items. Of this, around EUR 50mn was related to adjustments to the machining and casting units; around EUR 7mn was related to the write-down of facilities in China, and EUR 7mn was related to layoff costs. The share of revenue from Service was EUR 227mn at an EBIT margin of 19% (12% after costs). The 3Q13 order backlog was EUR 7.3bn (7,574 MW) – around 1x annual revenues (Europe & Africa 61%; Americas 31%; Asia Pacific 8%). We take comfort in the fact that Vestas again reported a positive FCF like that of 2Q13 (EUR 56mn; 2Q13: EUR 197mn). This was based on a strong improvement in W/C management (improved cash collection). The cash position was EUR 374mn (9M12: 474mn) vs. short-term debt of EUR 261mn (we expected EUR 300mn in undrawn facilities). All in all, the liquidity situation has eased on the back of good progress in FCF and cost management, but Vestas still faces large maturities in 2015. Expected development of credit profile: Vestas has increased its FY13 guidance and now expects to generate FCF of around EUR 500700mn to reduce net debt (former guidance: at least EUR 200mn). In addition, the company wants to achieve a high single-digit EBIT margin in the medium term and an EBIT margin before special items of at least 2% (former guidance was at least 1%), which corresponds to EBIT of around EUR 110mn. The high-margin Service segment is expected to continue to be the fastest growing segment in FY13 (guidance: EUR 1bn in revenue). We note that this business is more stable than the wind turbine business. The revenue guidance of EUR 5.5bn was reaffirmed (FY12: 7.2bn). Vestas's capex guidance was reduced to EUR 100mn (from EUR 150mn; FY12: EUR 167mn). FY13 fixed-cost savings are targeted at more than EUR 400mn in FY13. The credit profile of Vestas improved in 9M13. We calculate adj. FFO/net debt (adj.) of 30% vs. 25% in FY12, while net adjusted leverage stood at around 1.6x (FY12: 2.1x). FY13 will also mark the end of Vestas's turnaround plan, and the company will provide a strategy update in connection with the publication of its FY13 results in February 2014. In September, Vestas and Mitsubishi Heavy Industries (BBB+) announced the formation of an offshore wind energy JV in March 2014. The 50/50 JV will design, source, build and sell offshore power plants. While Vestas will develop its V164 and V112 turbines in the JV, Mitsubishi will inject EUR 100mn into the project for a start and might increase the amount to EUR 200mn depending on the pace of progress.
UniCredit Research
page 1
Major bond issues Mat VWSCD 03/15
Cpn 4.625
Z-Spread 363/325
Company website www.vestas.com Financial Calendar 2014 4 February: FY13 results 9 May: 1Q14 results 20 August: 2Q14 results
SPREADS: VESTAS VS. NORDEX 1,600 VWSDC 4.625% 3/15 NDXGR 6.375% 4/16
1,400 1,200 1,000 bp
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Recommendation Hold
800 600 400 200 Nov-12
Feb-13
May-13
Aug-13
Nov-13
EXTERNAL REVENUES BY SEGMENT (9M13)
100% = EUR 3.7bn
Americas 24%
Asia Pacific 11% Production 1%
Europe and Africa 45%
Service 19%
Source: iBoxx, Bloomberg, UniCredit Research
Author Dr. Manuel Herold (UniCredit Bank) Credit Analyst +49 89 378-12650
[email protected] Bloomberg UCGR Internet www.research.unicreditgroup.eu
See last pages for disclaimer.
19 November 2013
Credit Research
Credit Flash - Vestas Wind
Vestas Wind Systems A/S
Analyst: Dr. Manuel Herold (UniCredit Bank), +49 89 378-12650
Corporate Ratings
Rating Outlook
Credit Profile Trend
Recommendation
Index
Not rated
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Improving
Hold
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Mcap EUR 4.3bn
Rating Agencies' Views: Not rated by S&P, Moody's or Fitch
EBIT BY (GEOGRAPHICAL) SEGMENTS
MW SALES BY REGION
Production
Europe/Africa
Americas
Service
Asia Pacific
Europe and Africa
3,500
Americas
Asia Pacific
3,000
in MW
2,500 2,000 1,500 1,000
2012
LTM9M13
2011
2010
2009
2008
2012
LTM9M13
2011
2010
2009
2008
2012
LTM9M13
2011
2010
2009
0 2008
2008 2009 2010 2011 2012 LTM9M13
2008 2009 2010 2011 2012 LTM9M13
2008 2009 2010 2011 2012 LTM9M13
500 2008 2009 2010 2011 2012 LTM9M13
300 250 200 150 100 50 0 -50 -100 -150 -200 -250
2008 2009 2010 2011 2012 LTM9M13
in EUR mn
Company Description: Vestas Wind Systems A/S, headquartered in Randers, Denmark, develops and manufacturers wind turbine systems. The company was founded by Peter Hansen in 1945 as a steel technology company and produced its first wind turbines in 1979. Since the merger with Danish competitor NEG Micon in 2003, the group has been the largest turbine producer in the world. It has built up production facilities in 12 countries and operates a worldwide sales and service network. The group currently employs around 16,000 people. The main shareholders are Marathon AM (5.22%), Capital Group Co. (4.98%), Blackrock (4.92%), Norges Bank (3.34%) with the rest free float.
Strengths/Opportunities
Weaknesses/Threats
– World market leader for wind turbines (around 20% market share)
– Dependence on one product
– Offshore wind energy market leaders (Bloomberg): Siemens (53%) and
– Wind power must compete with conventional generation on a cost basis
Vestas (29%); other players
