Equity Research Heavy Electrical Equipment, Denmark

Vestas

Recommendation upgrade

Strong tailwind from order intake in Q1 •

Order intake at record level in Q1 2015

•

We lift our estimates to reflect higher guidance

•

Results Comment Q1 2015

May 7, 2015

Share price (DKK):

Growth momentum well into 2016; up to ACCUMULATE (Reduce)

Strong order intake supports profit ahead With record order intake in Q1, we see good support for profitability in the coming quarter and well into 2016. Also, we believe that a PTC extension later in the year could be on the cards. This would lift our estimates for 2017. We believe that Vestas now has the ability to scale up production without compromising margins.

Positive earnings surprises in a seasonally weak quarter Q1 EBIT of EUR 79m was well ahead of our EUR 41m estimate and consensus at EUR 44m. Order intake reached 1,750 MW, setting a new record for Q1. This supports cash flow, which is lifted to EUR 600m for 2015e (from EUR 400m). Vestas lifts its revenue guidance for 2105 to at least EUR 7.5bn (from EUR 6.5bn) and guides for an EBIT margin of at least 8.5% (previously 7%). We increase our 2105 revenue estimate to EUR 7.8bn and EBIT margin to 9.1%.

325

Mkt cap (EURm):

9,754

Mkt cap (DKKm):

72,824

No of shares (m):

224.1

Est. buybacks next 12m (% of MC):

n.m

Free float (%):

100

Avg daily volume (000'):

2,330

Avg daily value (EURm):

98

Bloomberg:

VWS DC

Reuters:

VWS.CO

Web address: IR web address: Next event:

Link to company website Link to IR website Aug 19, 2015: Q2 report

12m target return Target price, inc. div. (DKK):

350

Expected total return (%):

7.7

Expected total dividend yield (%):

1.2

DCF Value (DKK):

350

Upgrading to ACCUMULATE (Reduce) The valuation is on par with historical EV/EBIT multiples and does not look particularly demanding when comparing to our Capital Goods universe. We increase our target price to DKK 350 (270) to reflect our raised estimates. This is also supported by our DCF value, which has been lifted due to a reduced equity risk premium.

Balance sheet 2014 Net debt (EURm):

-1,461

Net debt/equity (%):

-61.4

ROE (%):

20.1

ROIC (%):

67.8

Main owners

Dan Togo Jensen, +45 46 79 12 46, [email protected]

Votes (%) Capital (%)

Company page on Handelsbanken’s REON

EURm

2013

2014

2015e

2016e

2017e

Sales

6,084

6,910

7,814

7,745

7,993

Sales growth (%)

-15.7

13.6

13.1

-0.89

3.2

Gross margin (%)

14.7

17.0

17.4

17.3

17.1

EBIT adj

211

559

708

672

664

margin (%)

3.5

8.1

9.1

8.7

8.3

EBT EPS reported (EUR)

-36

523

646

653

660

-0.40

1.76

2.16

2.18

2.21

EPS adj (EUR)

0.13

1.55

2.16

2.18

2.21

Y-o-y growth (%)

n.m

>900

40

1

1

-

-

22

40

n.m

P/E adj (x)

EPS adj revisions (%)

>99

19.7

20.1

19.9

19.7

P/BV (x)

Absolute and relative performance DKK

Index

319

120

279 100 239 80

199 159

M

J

J

A

2.87

2.87

3.55

3.13

2.79

ROE adj (%)

1.7

17.6

18.9

16.7

15.0

EV/EBIT (x)

18.9

8.8

10.2

10.1

9.6

EV/sales (x)

0.65

0.71

0.92

0.88

0.79

FCFE adj yield (%)

23.1

12.3

7.7

5.5

5.8

Tot DPS (DKK)

0

3.87

3.87

3.87

3.87

Tot Div yield (%)

0

1.7

1.2

1.2

1.2

Relative DJStoxx:

-7.9

-61.4

-76.3

-80.6

-84.8

52w range (DKK):

Net debt/equity (%) Source: Handelsbanken Capital Markets

For full disclaimer and definitions, please refer to the end of this report.

S

O

N

D

J

Vestas

%

F

M

A

M

60

rel. DJ Stoxx 600

-1m

-3m

-12m

Absolute:

6

12

27

Absolute EUR:

6

12

27

11

7

12

Source: FactSet

321 / 170

Results Comment, Vestas, May 7, 2015

P&L outcome, Q1   EURm

Small quarter well above estimates

Growth % Y-o-y Q-o-q

Actual

Deviation % HCM Cons

Sales

1,519

18.4

-38.6

15.1

13.0

Gross profit

3,038

>900

630

15.1

n.m

Gross margin (%)

200.0

-

-

-

-

79

97.5

-68.7

106

47.7

EBIT adj margin (%) EBT Net income

5.2

-

-

-

-

79

>900

-69.5

106

n.m

59

>900

-69.6

100

n.m

EPS reported

0.26

>900

-69.6

100

n.m

EPS adj

0.26

281

-66.3

100

103

Source: Company accounts, Handelsbanken Capital Markets, Reuters

Trend analysis Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Sales y-o-y

%

17.1

13.2

25.7

4.7

18.4

20.4

Order intake Y-o-y (%)

55.6

-1.2

-32.1

6.7

-100

-100

Book to bill ratio (%)

Higher margin in coming quarter

Q2 15e

81

125

56

83

0

0

EBITDA adj Y-o-y

n.m

121

51.5

31.4

62.7

1.1

EBITDA adj margin

10.0

18.8

14.3

14.4

13.7

15.8

EBIT adj Y-o-y

n.m

767

143

5.0

97.5

52.5

EBIT adj margin

3.1

7.8

9.0

10.2

5.2

9.8

EPS adj (EUR)

0.07

0.20

0.49

0.78

0.26

0.54

EPS adj Y-o-y

n.m

n.m

n.m

-30.2

281

176

Source: Company accounts, Handelsbanken Capital Markets

What has changed EURm

HCM Q2 15e

HCM vs. consensus chg (%)

HCM 2015e

chg (%)

HCM 2016e

chg (%)

EURm

Cons diff Q2 15e (%)

Cons diff 2015e (%)

Cons diff 2016e (%)

1,614

17

7,814

10

7,745

18

Sales

1,437

12

7,415

5

7,100

EBIT adj

159

36

708

26

672

53

EBIT adj

117

36

665

6

619

8

margin (%)

9.8

16

9.1

14

8.7

30

margin

8.1

2

9.0

0

8.7

0

Sales

9

EBT

159

36

646

22

653

40

EBT

-

n.m

671

-4

525

24

Net income

121

38

484

22

489

40

Net income

-

n.m

464

4

384

27

EPS

0.54

38

2.16

22

2.18

40

EPS

-

n.m

2.15

0

1.99

10

EPS adj

0.54

38

2.16

22

2.18

40

EPS adj

0.35

55

2.10

3

2.01

9

Source: Handelsbanken Capital Markets

Source: Handelsbanken Capital Markets and Reuters

Ownership structure

Investment case summary Votes (%)

Capital (%)

Number of A-shares

224,074,513

Number of B-shares

0

Total Free float Source: Handelsbanken Capital Markets

224,074,513 100%

Increasing volumes A resurgent US market combined with leading technology and a strengthened balance mean that Vestas is heading for doubledigit volume growth during 2015 and 2016. Draconic cost cuts Vestas has made draconic cost cuts over the past few years and efficiency measures are ongoing. Combined with recovering volumes, we believe the stage is set for margin surprises. Strong order momentum We anticipate strong order momentum over the coming few quarters, which is key for sentiment. Source: Handelsbanken Capital Markets

2

Results Comment, Vestas, May 7, 2015

Q1 review Record order intake during Q1 2015 has triggered an upgrade of the outlook for 2015 and increased free cash flow due to down-payments. Revenue and EBIT in Q1 were stronger than expected, which highlights that Vestas is well on track on the operational side. Order backlog is well diversified among some 20 countries and the production footprint offers both flexibility and further efficiency gains. Manpower is increasing primarily among blue collar workers due to expected higher production in 2015.

Strong profit performance in a seasonally challenged quarter Q1 2015 stronger than expected

Q1 2015 revenue of EUR 1.5bn was some 12-13% above our and consensus expectations and 18% above last year's (Q1 2014) level of EUR 1.3bn. EBIT of EUR 79m was significantly above our estimate at EUR 41m and consensus at EUR 44m. However, this is the weakest quarter in the year and profits are earned in the coming quarters. Order intake reached 1,750 MW. Of this, 418 MW was unannounced, whereas both we and consensus had expected closer to 500 MW in unannounced orders. As such, order intake was below estimates, but still represents a record for a first quarter. Table 1: Deviation table Deviation

EURm Equipment

Q1 14 1,058

HCM

Cons

Q1 15e

Q1 15e

HCM Q1 15e

Cons Q1 15e

Actual Q1 15

1,121

-

Service

225

234

-

Others

-

-

-

Sales

1,283

1,355

17

6

Sales growth (%)

COGS

(1,099)

1,345

12.1%

12.9%

1,519 18%

(1,150)

(1,293)

Gross profit

184

205

187

Gross margin (%)

14.3

15.1

13.9

10.2%

14.9

SG&A

(144)

(164)

(144)

-

40

41

44

EBIT margin (%)

3.1

3.0

3.2

Special items

(13)

-

Reported EBIT

27

41

44

92.7%

81.6%

79

(25) 2

(12) 29

31

160.3%

149.2%

(3) 76

2

(8) 22

26

159.2%

119.6%

(20) 56

-4.5%

-4.9%

1,750

Taxes Net profit Order intake (MW)

81.6%

226

EBIT (pre-special items)

Net financials PTP

92.7%

20.9%

79 5.2

-

1,188

1,832

1,841

- of which announced

584

1,332

1,332

0.0%

0.0%

1,332

- of which unannounced

604

500

509

-16.4%

-17.9%

418

Source: Handelsbanken Capital Markets, company data, Ritzau

3

Results Comment, Vestas, May 7, 2015

Lifted guidance is aligned with pre-Q1 consensus expectations Vestas lifts margin guidance...

Vestas lifted its FY 2015 guidance to minimum revenue of EUR 7.5bn (from EUR 6.5bn) and a minimum EBIT margin of 8.5% (from 7%). This is aligned with consensus estimates prior to the Q1 report, and we believe that consensus estimates are likely to be lifted further.

...and FCF

Also, free cash flow is lifted to EUR 600m from EUR 400m. Vestas has posted very strong net working capital performance. Net working capital is a negative EUR 1.1bn, which is down compared to last year and to the end of 2014, partially due to the large order intake that has triggered pre-payments.

Strong momentum ahead from high order backlog Future growth now looks more secure

The order backlog of EUR 7.5n is now at its highest level since 2012, and the service backlog is at a record high EUR 7.5bn. In our view, this bodes well for profitability in coming quarters and years. The order backlog is well spread across some 20 countries. Furthermore, Vestas is now starting to receive orders from China, where the market potential is significant. In our view, this bodes well for future growth. Profit performance will rely on Vestas’ ability to deliver flawlessly on the order backlog. Q1 2015 underlines that the production machine is running smoothly at higher margins and lower working capital. In our view, there is still sufficient production capacity available to deliver on growth in coming years.

4

Results Comment, Vestas, May 7, 2015

Outlook and valuation We lift our estimates following the strong order intake and the higher USD. This also feeds into 2016 as we expect revenue to be sustained at the high level from 2015. On our higher estimates, the valuation is high but not particularly demanding relative to our Capital Goods universe. We lift our target price to DKK 350 (270), supported by our DCF valuation. We upgrade Vestas to ACCUMULATE (Reduce).

Lifting estimates to reflect higher guidance We lift our estimates for 2015 and 2016 substantially to reflect the increase in order intake but also supported by the USD, as particularly the US market supports the EU-based price per MW. We now expect an order intake of 7,200 MW in 2015 against 6,544 MW in 2014. We lift our 2015 and 2016 estimates

We now estimate revenue of EUR 7.8bn in 2015 and an EBIT margin of 9.1%. This compares to Vestas’ guidance of at least EUR 7.5bn in revenue and an EBIT margin of at least 8.5%. Our revenue estimate reflects revenue growth of 13.1% y-o-y in 2015, which is almost on par with revenue growth of 13.6% y-o-y in 2014. The strong order intake will feed through into 2016 and we hence also lift our 2016 estimates. However, due to a slower development in the US as the PTC extension is still uncertain, we expect revenue to be more or less flat.

Valuation is high but not stretched Looks relatively attractive again

Our new and higher estimates correspond to a 2106e EV/EBIT of 10x, which is on par with historical trading and is not stretched when comparing to our Capital Goods and Engineering universe where Vestas is priced in the lower end on EV/EBIT but has a higher-than-average FCF yield of almost 8% in 2015. Figure 1: Capital goods screening 15

FCF yield

10

5

0

-5 5

7

9

11

13

15

17

19

21

EV/EBIT 16e

Source: Handelsbanken Capital Markets

Upgrade to ACCUMULATE (Reduce) Up to ACCUMULATE

The valuation is furthermore supported by our DCF valuation at DKK 350 per share, which has been lifted due to a reduced equity risk premium. We now upgrade the Vestas share to ACCUMULATE (Reduce). We expect strong order momentum and operational excellence (i.e. high cash flow and margin performance) to support the case. A possible PTC extension will also be a trigger, but is not due until later in 2015.

5

Results Comment, Vestas, May 7, 2015

Valuation charts Current vs. high/low/median, 10 years P/BV 12.3

EV/Sales

EV/EBITDA

3.4

>100

P/E x

EV/EBIT >100

90

60

3.9

3.2 0.3

30

0.9

1.1

21.4 9.7 3.4

0.2

12.4 7.4

0 2005

70 => overbought. RSI99

19.7

20.1

19.9

19.7

P/sales (x)

0.7

0.3

0.1

0.7

1.0

1.25

1.26

1.22

P/CEPS (x)

9.1

8.6

26.4

13.7

8.5

11.0

10.9

10.7

P/BV (x)

1.74

0.66

0.54

2.87

2.87

3.55

3.13

2.79

P/NAV (x)

2.77

1.27

1.44

4.15

3.42

4.03

3.43

3.00

ROE adj (%)

11.8

-5.4

-12.5

1.7

17.6

18.9

16.7

15.0

Pre-tax ROIC (%)

14.5

2.1

-11.0

16.3

67.8

114

139

153 0.79

  EV/sales (x)

0.8

0.4

0.2

0.7

0.7

0.92

0.88

EV/EBITDA (x)

7.2

7.2

3.7

7.3

4.9

6.6

6.3

5.8

EV/EBITA (x)

9.6

24.4

7.7

9.3

6.1

8.0

7.8

7.3

11.5

n.m

>99

18.9

8.8

10.2

10.1

9.6

EV/EBIT (x)

  -14.2

5.9

-41.3

23.1

12.4

7.7

5.5

5.8

Tot Div yield (%)

0

0

0

0

1.7

1.2

1.2

1.2

Payout ratio (%)

0

0

0

0

29.5

24.1

23.8

23.5

FCF adj yield (%)

Source: Handelsbanken Capital Markets

DCF model assumptions EURm

2014

2015e

2016e

2017e

2018e

2019e

2024e

2029e

2034e

Sales

6,910

7,814

7,745

7,993

8,387

8,807

10,210

11,836

13,721

EBITDA - Reported

984

1,092

1,075

1,087

1,160

1,218

1,619

1,711

1,958

EBITA2 - Reported (=EBITA

607

708

672

664

715

751

817

888

960

2034e

  %

2014

2015e

2016e

2017e

2018e

2019e

2024e

2029e

Sales CAGR, %

13.6

13.1

-0.9

3.2

4.9

5.0

3.0

3.0

3.0

EBITDA growth

82.9

9.7

-1.5

1.1

6.7

5.0

5.9

1.1

2.7

164.9

26.6

-5.1

-1.2

7.8

5.0

1.7

1.7

1.6

14.4

14.0

13.9

13.6

13.8

13.8

15.9

14.5

14.3

8.1

9.1

8.7

8.3

8.5

8.5

8.0

7.5

7.0

EBITA growth

 

EBITDA margin EBITA margin

 

Capex/sales

4.0

3.8

4.5

4.8

5.2

5.2

9.0

8.0

8.0

Capex/depreciation (x)

0.76

0.78

0.87

0.90

0.99

0.99

1.2

1.2

1.1

Net working cap/sales

-14.1

-14.6

-14.6

-14.6

-14.6

-14.6

7.2

8.0

8.0

WACC assumptions, %

Calculation of DCF, EURm

Risk-free interest rate

2.2

NPV FCFF

Equity market risk premium

4.5

ND inc off-BS & Hybrids

Extra risk premium Equity beta (x)

-

Mkt value Preferred stock

DCF checkpoints, % 8,604

5y hist sales growth

6.4

-1,461

5y exp sales growth

5.0

Sustainable growth

300.0

-

1.30

Mkt value Associates

Implicit asset beta

1.6

Mkt value Minorities

-

Sust EBITA margin

7.0

Cost of equity

8.1

Surplus values

-

Sust after-tax ROIC

30.2

Pre-tax cost of debt Equity weight WACC

5.0 90.0 7.6

Other adjustments DCF Value DCF/share (DKK)

444

Sust EBITDA margin

14.3

-

Terminal value/DCF

35

10,509

Implicit equity weight

120

350

Share price potential

8

Source: Handelsbanken Capital Markets

9

Results Comment, Vestas, May 7, 2015

P&L accounts – quarterly data EURm

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15e

Q3 15e

1,283

1,341

1,813

2,473

1,519

1,614

1,891

2,790

-1,099

-1,081

-1,495

-2,057

1,519

1,614

1,891

-11,481

Gross profit

184

260

318

416

3,038

3,228

3,782

-8,691

S,G&A

-91

-97

-100

-118

0

0

0

-426

R&D costs

-53

-59

-55

-46

0

0

0

-224

-144

-156

-155

-164

0

0

0

-650

-13

50

-8

19

-

-

-

-

27

154

155

271

79

159

179

291

Sales Cost of goods sold

OPEX Other operating expenses EBIT Net financials

Q4 15e

-25

-28

-19

19

0

0

0

-47

2

126

136

259

79

159

179

229

EBT Total tax

0

-32

-34

-65

-20

-37

-43

-61

tax rate %

0

25.4

25.0

25.1

25.3

23.6

23.9

26.8

Net income

2

94

102

194

59

121

136

168

13

  Growth % Sales

17

13

26

5

18

20

4

EBIT

n.m

n.m

>900

18

193

3

15

7

Net income

n.m

n.m

n.m

-11

>900

29

33

-13

Gross margin

14.3

19.4

17.5

16.8

200

200

200

500

>500

>500

>500

ROE reported

Sales/capital invested (x) Sales/total assets (x)

0.9

0.8

1.0

1.0

1.1

1.0

1.0

0.9

Sales per employee

311

255

343

357

405

458

454

469

  Adjusted values EURm

2010

2011

2012

2013

2014

2015e

2016e

2017e

Total adjustments to net inc

-158

-22

-701

-109

48

-

-

-

468

-38

4

211

559

708

672

664

margin (%)

6.8

-0.65

0.06

3.5

8.1

9.1

8.7

8.3

EBT

396

-131

-12

73

475

646

653

660

Net income

314

-144

-262

27

344

484

489

495

EBIT

Source: Handelsbanken Capital Markets

12

Results Comment, Vestas, May 7, 2015

Forecast balance sheet EURm

2010

2011

2012

2013

2014

2015e

2016e

624

663

792

626

598

676

670

692

2,735

2,546

2,244

1,425

1,509

1,719

1,704

1,759

Other current assets

381

583

604

743

674

742

736

759

Cash other interest-bearing

335

375

851

694

2,018

2,654

3,070

3,524

Accounts receivable Inventory

Current assets

2017e

4,075

4,167

4,491

3,488

4,799

5,792

6,180

6,733

Goodwill

320

320

216

215

215

215

215

215

R&D

626

833

736

484

411

347

299

270

Other intangible

88

90

64

42

32

32

32

32

Tangible assets

1,704

1,898

1,286

1,221

1,132

1,112

1,107

1,091

Shares associates Oth non-IB fixed assets Other financial assets

4

4

1

1

188

174

174

179

224

333

146

155

170

170

170

170

25

44

32

34

50

50

50

50

Total assets

7,066

7,689

6,972

5,640

6,997

7,891

8,226

8,740

Equity

2,769

2,576

1,622

1,524

2,379

2,747

3,120

3,498

Shareholders equity

2,769

2,576

1,622

1,524

2,379

2,747

3,120

3,498

Pension provisions

2

2

2

2

n.m

n.m

n.m

n.m

Deferred tax liabilities

6

12

17

21

17

17

17

17

LT interest-bearing debt

910

914

1,458

604

3

3

3

3

ST interest-bearing debt

4

6

293

4

604

604

604

604

Provisions

139

145

175

200

241

241

241

241

Trade payables

1,120

1,563

1,008

832

957

1,055

1,046

1,079

Oth current liabilities

2,116

2,471

2,397

2,453

2,796

3,224

3,196

3,298

Current liabilities

3,240

4,040

3,698

3,289

4,357

4,883

4,845

4,981

Total equity & liabilities

7,066

7,689

6,972

5,640

6,997

7,891

8,226

8,740

Net interest bearing debt

554

501

868

-120

-1,461

-2,097

-2,513

-2,967

Source: Handelsbanken Capital Markets

Forecast cash flow 2010

2011

2012

2013

2014

2015e

2016e

2017e

EBIT before associates

EURm

310

-60

-593

102

607

708

672

664

+ Net financials

-27

-38

-54

-119

-54

-47

-19

-9

- Paid Tax

-96

-16

-97

-57

-131

-161

-163

-165

-353

747

-304

829

260

169

-10

36

374

365

996

407

390

384

404

424

-103

-158

-21

86

54

-

-

-

105

840

-73

1,248

1,126

1,053

883

950

- Net recurring capex

-787

-740

-286

-239

-278

-300

-350

-380

FCF bef Acq. & Div. (FCF)

-682

100

-359

1,009

848

753

533

570

- Acquisitions

-2

-21

-

-

-16

-

-

-

+ Divestments

-

-

-

-

9

-

-

-

-684

79

-359

1,009

841

753

533

570

- Chg in NWC + Depreciation/Impairment + Other adjustment Cash flow from operations (CFFO)

FCF to Equity (FCFE) - Paid dividends to share holders

-

-

-

-

-

-117

-117

-117

- Share buy-backs

-

-17

-

-7

-43

-

-

-

+ New share issue

-

-

-

-

432

-

-

-

-23

-9

-8

-14

111

-

-

-

NET Cash flow/Chg in NIBD

-707

53

-367

988

1,341

636

416

453

Funds from operations (FFO)

458

93

231

419

866

883

893

914

Cash flow from operations (CFFO)

105

840

-73

1,248

1,126

1,053

883

950

FCF bef Acquisitions & Divestments

-682

100

-359

1,009

848

753

533

570

FCF to Equity (FCFE)

-684

79

-359

1,009

841

753

533

570

+ Other adjustments

Source: Handelsbanken Capital Markets

13

Results Comment, Vestas, May 7, 2015

Financial ratios 2010

2011

2012

2013

2014

2015e

2016e

Equity/total assets

%

39.2

33.5

23.3

27.0

34.0

34.8

37.9

40.0

Net debt/equity

20.0

19.4

53.5

-7.9

-61.4

-76.3

-80.6

-84.8

Net debt/EBITDA (x)

0.8

1.6

2.9

n.m

n.m

n.m

n.m

n.m

Net cash flow/capex

-89.8

7.2

-128

413

482

212

119

119

EBITDA net interest cover (x)

34.2

9.5

7.4

6.2

33.9

63.4

76.5

122

EBIT net interest cover (x)  

15.5

n.m

n.m

1.3

20.9

41.1

47.8

74.3

FCFF/total debt

2017e

-57.8

21.4

-19.8

479

111

98.8

68.2

71.5

Total debt/capital

24.8

26.3

51.9

28.5

20.3

18.1

16.3

14.8

Short-term debt/capital

0.11

0.17

8.7

0.19

20.2

18.0

16.2

14.7

Long-term debt/capital  

24.7

26.1

43.2

28.3

0.10

0.09

0.08

0.07

Inventory/sales

39.5

43.6

31.1

23.4

21.8

22.0

22.0

22.0

Receivable/sales

14.5

21.4

19.3

22.5

18.4

18.2

18.2

18.2

Acc.payable/sales

22.9

35.4

23.6

28.8

24.5

23.8

23.8

23.7

7.3

-4.1

3.3

-8.1

-14.1

-14.6

-14.6

-14.6

Working capital/sales Current ratio

126

103

121

106

110

119

128

135

Quick ratio

41.4

40.1

60.8

62.7

75.5

83.4

92.4

99.9

2017e

Source: Handelsbanken Capital Markets

Per share data EUR

2010

2011

2012

2013

2014

2015e

2016e

No of shares, year-end (m)

203.7

203.7

203.7

203.7

224.1

224.1

224.1

224.1

No of shares, average (m)

203.7

203.7

203.7

203.7

222.4

224.1

224.1

224.1

0.77

-0.81

-4.73

-0.40

1.76

2.16

2.18

2.21

21

n.m

n.m

n.m

n.m

23

1

1

1.54

-0.71

-1.29

0.13

1.55

2.16

2.18

2.21

EPS reported Y-o-y growth (%) EPS adj Y-o-y growth (%)

144

n.m

n.m

n.m

>900

40

1

1

Cash earnings

2.60

0.97

0.16

1.57

3.60

3.94

3.98

4.08

DPS - ordinary

-

-

-

-

0.52

0.52

0.52

0.52

Payout ratio (%)

-

-

-

-

29.5

24.1

23.8

23.5

Tot cash payout ratio (%) Book value Y-o-y growth (%) Net debt NAV Source: Handelsbanken Capital Markets

14

-

-

-

-

-

24.1

23.8

23.5

13.6

12.6

8.0

7.5

10.6

12.3

13.9

15.6

9

-7

-37

-6

42

15

14

12

2.72

2.46

4.26

-0.59

-6.5

-9.4

-11.2

-13.2

8.5

6.5

2.97

5.2

8.9

10.8

12.7

14.5

Results Comment, Vestas, May 7, 2015

Disclosures Recommendation Structure, Definitions and Allocations Handelsbanken Capital Markets Equity Research (HCM) employs a four-graded recommendation scale. The recommendations reflect the analyst’s assessment of how much the share price may appreciate or depreciate in absolute terms in a 12-month time horizon and takes into account risks related to both fundamental expectations and share performance. Investment ratings are determined by the ranges described in the table below. The recommendations do not represent the analyst’s or the bank’s assessment of the company’s fundamental value or quality. All investments involve risks and investors are encouraged to make their own decision as to the appropriateness of an investment in any securities referred to in this report, based on their specific investment objectives, financial status and risk tolerance. The recommendations and absolute performance intervals, together with the allocation of the rating categories amongst companies under coverage and amongst companies under coverage for which Handelsbanken has provided investment banking services in the past 12 months are listed below:

Ratings: definitions and allocations 1 HCM Universe2 RTP is expected to be HCM rating Buy >+20% 21% Accumulate +5% - +20% 49% Reduce -15% - +5 % 29% Sell < -15 % 1% 1 RTP is defined as the expected share price appreciation (depreciation) including dividends over the next 12 months 2 Percentage of companies under coverage within each rating category 3 Percentage of companies within each rating category for which investment banking services have been provided in the past 12 months

IB services3 7% 8% 2% 0%

Source: Handelsbanken Capital Markets, as per 7/5 2015 Upgraded Accumulate DKK 325 At times, the expected total returns may fall outside of the above stated ranges because of price movement and/or volatility. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. Recommendations are continuously reviewed by the analyst and monitored by the Research Management and will be updated and/or refreshed regularly. The rationale behind a change in recommendation will be explained in such a refresher/update. On 30/09/2013 the recommendation ''Reduce'' was changed to the current recommendation ''Accumulate'' at a share price of DKK 139.10. The target price (TP) is the analyst’s assessment of the level at which the share should be traded in a 12-month period. The TP is used as a basis for the recommendation (see explanation above) and takes into account timing-related issues and triggers, such as relative valuation and newsflow. The TP does not represent the analyst’s or the bank’s assessment of the company’s fundamental value or quality.

Unless otherwise specified, share prices mentioned in this report refer to the closing price of the previous day. 7,814 10 7,745 17.7 2.16 21.5 2.18 39.8 Acc Red Under Work 110341 118

Valuation and earnings forecasts Target prices, outlooks and recommendations expressed in this research report are based on a combination of valuation models, such as discounted cash flow (DCF) and relative valuation to peers using ratios such as price-to-earnings (P/E), enterprise-value-to-operating profit (EV/EBITDA), price-to-book (P/B) and earnings models. Sales and earnings forecasts are based on historical financial data as reported by the company and the analyst's expectations for company-specific performance are derived from expectations of micro- and macro-economic developments. The company's different business segments are modelled separately in this process and then aggregated to achieve group forecasts for sales, earnings, cash flow and the balance sheet.

Research Disclaimers Handelsbanken Capital Markets, a division of Svenska Handelsbanken AB (publ) (collectively referred to herein as ‘SHB’), is responsible for the preparation of research reports. SHB is regulated in Sweden by the Swedish Financial Supervisory Authority, in Norway by the Financial Supervisory Authority of Norway, in Finland by the Financial Supervisory of Finland and in Denmark by the Danish Financial Supervisory Authority. All research reports are prepared from trade and statistical services and other information that SHB considers to be reliable. SHB has not independently verified such information and does not represent that such information is true, accurate or complete. Accordingly, to the extent permitted by law, neither SHB, nor any of its directors, officers or employees, nor any other person, accept any liability whatsoever for any loss, however it arises, from any use of such research reports or its contents or otherwise arising in connection therewith. In no event will SHB or any of its affiliates, their officers, directors or employees be liable to any person for any direct, indirect, special or consequential damages arising out of any use of the information contained in the research reports, including without limitation any lost profits even if SHB is expressly advised of the possibility or likelihood of such damages. The views contained in SHB research reports are the opinions of employees of SHB and its affiliates and accurately reflect the personal views of the respective analysts at this date and are subject to change. There can be no assurance that future events will be consistent with any such opinions. Each analyst identified in this research report also certifies that the opinions expressed herein and attributed to such analyst accurately reflect his or her individual views about the companies or securities discussed in the research report. Research reports are prepared by SHB for information purposes only. The information in the research reports does not constitute a personal recommendation or personalised investment advice and such reports or opinions should not be the basis for making investment or strategic decisions. This document does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any securities nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. Past performance may not be repeated and should not be seen as an indication of future performance. The value of investments and the income from them may go down as well as up and investors may forfeit all principal originally invested. Investors are not guaranteed to make profits on investments and may lose money. Exchange rates may cause the value of overseas investments and the income arising from them to rise or fall. This research product will be updated on a regular basis. 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We may act as adviser and/or broker to any of the companies mentioned in our research. SHB may also seek corporate finance assignments with such companies. We buy and sell securities mentioned in our research from customers on a principal basis. Accordingly, we may at any time have a long or short position in any such securities. We may also make a market in the securities of all the companies mentioned in this report. [Further information and relevant disclosures are contained within our research reports.] SHB, its affiliates, their clients, officers, directors or employees may own or have positions in securities mentioned in research reports. According to the Bank’s Ethical Guidelines for the Handelsbanken Group, the board and all employees of the Bank must observe high standards of ethics in carrying out their responsibilities at the Bank, as well as other assignments. 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This document may be distributed in the United Kingdom only to persons who are authorised or exempted persons within the meaning of the Financial Services and Markets Act 2000 (as amended) (or any order made thereunder) or (i) to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), (ii) to high net worth entities falling within Article 49(2)(a) to (d) of the Order or (iii) to persons who are professional clients under Chapter 3 of the Financial Conduct Authority Conduct of Business Sourcebook (all such persons together being referred to as “Relevant Persons”). 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Vestas This report has not been given to the subject company, or any other external party, prior to publication to approval the accuracy of the facts presented. The subject company has not been notified of the recommendation, target price or estimate changes, as stated in this report, prior to publication. As of May 6, 2015 - Handelsbanken's analyst Dan Togo Jensen has a position in Vestas or a related instrument.

15

Company overview P&L EUR Sales, bn growth (%) Gross margin % SG&A to sales % EBITDA, bn margin % EBITA, m margin % EBIT, m margin % Net income, m growth % Adj net income, m  

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e 0.6 67 16.6 4.0 0.1 13.8 73 11.5 89 14.1 58 131 3

1.4 123 13.3 19.3 0.2 10.7 123 8.7 117 8.3 87 50 89

1.3 -9 15.0 3.3 0.2 14.8 151 11.8 143 11.2 340 292 98

1.4 9 10.2 4.1 0.1 9.4 86 6.2 74 5.3 45 -87 46

1.7 19 9.1 3.8 0.1 9.0 89 5.4 74 4.5 36 -21 36

2.4 43 5.1 5.1 0.1 2.4 -18 -0.77 -50 -2.1 -61 n.m 92

3.6 52 2.4 3.6 0.0 0.15 -79 -2.2 -116 -3.2 -192 n.m -171

4.2 17 11.1 4.4 0.3 7.9 212 5.1 204 4.9 114 n.m 114

3.8 -8 15.3 6.7 0.3 8.9 255 6.7 202 5.3 50 -56 50

5.9 54 19.1 6.6 0.7 12.7 646 10.9 614 10.4 457 814 457

5.1 -14 16.5 9.7 0.5 9.2 311 6.1 251 4.9 125 -73 125

6.9 36 17.0 8.0 0.7 9.9 415 6.0 310 4.5 156 25 314

5.8 -16 12.4 9.6 0.3 5.2 68 1.2 -60 -1.0 -166 n.m -144

7.2 24 11.0 7.4 0.3 4.1 -306 -4.2 -697 -9.7 -963 n.m -262

6.1 -16 14.7 7.2 0.5 8.3 318 5.2 102 1.7 -82 n.m 27

6.9 14 17.0 5.9 1.0 14.2 787 11.4 607 8.8 392 n.m 344

7.8 13 17.4 5.5 1.1 14.0 897 11.5 708 9.1 484 24 484

7.7 -1 17.3 5.7 1.1 13.9 870 11.2 672 8.7 489 1 489

8.0 3 17.1 5.7 1.1 13.6 872 10.9 664 8.3 495 1 495

0.1 4 0.3 0.0 0.4 0.1 0.0 3 0.1 0.4 0.0

0.2 23 0.8 0.0 1.0 0.3 0.1 0.5 1.0 0.0

0.2 2 0.8 0.0 1.0 0.6 0.1 45 0.3 1.0 0.1

0.3 1 0.9 0.0 1.3 0.6 0.1 153 0.4 1.3 0.2

0.3 11 1.0 0.0 1.4 0.6 0.1 142 0.5 1.4 0.2

0.5 324 1.8 0.2 2.9 1.2 0.5 110 1.2 2.9 0.4

0.5 322 2.0 0.1 3.1 1.0 0.4 51 1.6 3.1 0.4

0.5 320 2.5 0.4 3.7 1.1 0.2 11 2.3 3.7 -0.3

0.6 320 3.9 0.8 5.3 1.2 0.1 25 3.8 5.3 -0.6

1.0 320 4.4 0.3 6.3 1.6 0.0 109 4.6 6.3 -0.2

1.5 320 5.3 0.5 8.0 2.5 0.3 12 4.8 8.0 -0.2

1.7 320 4.1 0.3 7.1 2.8 0.9 4 3.2 7.1 0.6

1.9 320 4.2 0.4 7.7 2.6 0.9 6 4.0 7.7 0.5

1.3 216 4.5 0.9 7.0 1.6 1.5 293 3.7 7.0 0.9

1.2 215 3.5 0.7 5.6 1.5 0.6 4 3.3 5.6 -0.1

1.1 215 4.8 2.0 7.0 2.4 0.0 604 4.4 7.0 -1.5

1.1 215 5.8 2.7 7.9 2.7 0.0 604 4.9 7.9 -2.1

1.1 215 6.2 3.1 8.2 3.1 0.0 604 4.8 8.2 -2.5

1.1 215 6.7 3.5 8.7 3.5 0.0 604 5.0 8.7 -3.0

-34 0.0 0.0 -7 0.7 0.0

0.1 0.1 0.1

-100 -0.1 0.0 136 14 0.0

-138 -0.2 -0.1 139 -21 -0.1

-114 0.1 0.0 -13 11 0.2

-128 -0.2 -0.3 -83 -0.1

-150 0.1 0.0 -6 0.2

-144 0.3 0.5 30 0.6

-317 0.1 0.3 0.6

-680 -0.4 -0.4 10 0.3

-808 -0.2 -0.8 25 0.0

-787 -0.5 -0.7 -2 0.1

-740 0.2 0.1 -21 0.8

-286 -0.3 -0.4 -0.1

-239 2.9 1.0 1.2

-278 0.7 0.8 -16 9 1.1

-300 0.6 0.8 -117 1.1

-350 0.4 0.5 -117 0.9

-380 0.4 0.6 -117 0.9

60.5 48.0 23.3 5.4 17.3 2.11 >500 13 40.9

51.1 37.7 42.2 0 16.0 2.08 >500 0 31.6

30.9 77.4 26.6 7.8 41.2 1.28 2.62 17 56.3

11.4 7.8 9.6 9.9 46.5 1.22 1.85 41 47.0

10.7 5.9 8.8 6.9 37.6 1.24 1.97 37 44.3

-1.5 -6.9 7.9 5.4 25.0 1.11 1.98 33 40.3

-5.6 -18.0 n.m 4.2 9.0 1.20 2.51 37 31.2

19.8 11.0 14.8 3.4 -5.4 1.23 3.90 -26 30.0

36.7 4.3 15.3 8.3 -18.4 0.85 >500 -53 22.4

65.8 32.9 40.3 11.5 -5.5 1.02 >500 -12 25.1

16.4 6.1 10.9 15.9 -0.18 0.71 2.68 -6 31.9

14.5 5.9 14.2 11.4 7.3 0.92 2.42 20 39.2

2.1 -6.2 n.m 12.7 -4.1 0.79 1.82 19 33.5

-11.0 -45.9 0.12 4.0 3.3 0.98 2.59 54 23.3

16.3 -5.2 7.7 3.9 -8.1 0.96 3.12 -8 27.0

67.8 20.1 21.8 4.0 -14.1 1.09 >500 -61 34.0

114 18.9 22.3 3.8 -14.6 1.05 >500 -76 34.8

139 16.7 19.0 4.5 -14.6 0.96 >500 -81 37.9

153 15.0 16.9 4.8 -14.6 0.94 >500 -85 40.0

Avg no shares (m) 117 change (%) 1 Avg diluted shares (m 117 change (%) 1 Share price YE (DKK) 117.3 Market cap (DKK), bn 13.7 EV (DKK), bn 13.7 Net debt/share 0.2 EPS reported 0.50 growth (%) 129 EPS adj 0.03 growth (%) -88 BVPS 1.27 DPS - Ordinary 0.07 Total cash distr./share 0  

117 0 117 0 385.0 45.1 45.1 0 0.74 49 0.76 >900 2.67 0.90 0.07

117 0 117 0 204.1 23.9 24.6 0.8 2.91 292 0.84 10 4.84 1.34 0.90

117 0 117 0 63.1 7.4 9.2 2.1 0.38 -87 0.39 -53 5.1 0.67 1.34

117 0 117 0 86.0 10.1 11.8 1.9 0.30 -21 0.31 -22 5.2 0.67

151 29 151 29 68.0 11.9 14.7 2.2 -0.41 n.m 0.61 99 6.6 0

175 16 175 16 103.5 18.1 20.7 2.0 -1.09 n.m -0.98 n.m 5.5 0

183 4 183 4 238.8 44.2 42.0 -1.6 0.63 n.m 0.63 n.m 6.1 0

185 1 185 1 552.0 102.2 97.5 -3.4 0.27 -57 0.27 -57 6.4 0

185 0 185 0 303.5 56.2 54.7 -1.0 2.47 814 2.47 814 8.6 0

198 7 198 7 317.0 64.6 63.4 -0.8 0.63 -74 0.63 -74 12.5 0

204 3 204 3 176.1 35.9 40.0 2.7 0.77 21 1.54 144 13.6 0

204 0 204 0 62.0 12.6 16.3 2.5 -0.81 n.m -0.71 n.m 12.6 0

204 0 204 0 31.9 6.5 13.0 4.3 -4.73 n.m -1.29 n.m 8.0 0

204 0 204 0 160.2 32.6 29.7 -0.6 -0.40 n.m 0.13 n.m 7.5 0

222 9 222 9 226.5 50.8 36.5 -6.5 1.76 n.m 1.55 >900 10.6 0.52 0

224 1 224 1 325.0 72.8 53.9 -9.4 2.16 23 2.16 40 12.3 0.52 0.52

224 0 224 0 325.0 72.8 50.7 -11.2 2.18 1 2.18 1 13.9 0.52 0.52

224 0 224 0 325.0 72.8 47.3 -13.2 2.21 1 2.21 1 15.6 0.52 0.52

69.5 67.7 61.1 40.0 4.3 8.7 4.3 19.3 21.9 37.7 0.93 1.7

9.4 32.7 8.7 17.4 2.6 11.8 2.5 5.7 6.0 77.4 -12.1 4.9

22.1 21.6 9.7 9.4 0.89 6.2 0.71 1.7 1.8 7.8 -25.9 7.8

38.0 37.7 12.2 10.6 0.96 5.4 0.82 2.2 2.4 5.9 4.0 0

n.m 15.0 30.2 9.4 0.84 -0.77 0.58 1.4 2.3 -6.9 -11.5 0

n.m n.m n.m >99 0.77 -2.2 0.68 2.5 5.0 -18.0 1.7 0

51.2 51.2 24.2 17.0 1.3 5.1 1.4 5.3 9.2 11.0 8.2 0

>99 >99 72.9 38.5 3.4 6.7 3.6 11.5 20.1 4.3 2.4 0

16.5 16.5 12.7 9.8 1.2 10.9 1.3 4.8 8.0 32.9 -5.5 0

67.4 67.4 24.7 18.2 1.7 6.1 1.7 3.4 5.0 6.1 -9.8 0

30.8 15.3 9.1 7.2 0.77 6.0 0.70 1.7 2.8 5.9 -14.2 0

n.m n.m 8.6 7.2 0.38 1.2 0.29 0.7 1.3 -6.2 5.9 0

n.m n.m 26.4 3.7 0.24 -4.2 0.12 0.5 1.4 -45.9 -41.3 0

n.m >99 13.7 7.3 0.65 5.2 0.72 2.9 4.2 -5.2 23.1 0

17.3 19.7 8.5 4.9 0.71 11.4 0.98 2.9 3.4 20.1 12.4 1.7

20.1 20.1 11.0 6.6 0.92 11.5 1.2 3.6 4.0 18.9 7.7 1.2

19.9 19.9 10.9 6.3 0.88 11.2 1.3 3.1 3.4 16.7 5.5 1.2

19.7 19.7 10.7 5.8 0.79 10.9 1.2 2.8 3.0 15.0 5.8 1.2

Balance sheet Tangible assets, bn Goodwill, m Current assets, bn Cash, bn Total assets, bn Equity, bn LT int bearing debt, b ST int bearing debt, m Current liab, bn Total liabilities, bn Net int bearing debt, b  

Cash flow Capex, m FCF to firm, bn FCF to equity, bn Acquisitions, m Divestments, m Dividends, m CFFO, bn  

Ratios (%) Pre-tax ROIC ROE reported ROCE Capex to sales NWC to sales Sales/assets (x) Sales/IC (x) Net debt/equity Equity/total assets  

Share data

Valuation (x) P/E reported P/E adjusted P/CEPS EV/EBITDA EV/sales EBIT margin (%) P/sales P/BV P/NAV ROE reported (%) FCF adj yield (%) Tot Div yield (%) Calendar Q2 report Q3 report

31.7 >99 33.0 57.6 2.9 11.5 2.9 12.4 12.7 48.0 -5.0 0.46

Aug 19, 2015 (08:30) Nov 05, 2015 (08:30)

Company profile Vestas is the market leader within the supply of wind power systems for both on- and offshore. Vestas has insourced production of blades, nacelles, towers and software used in control systems.

Management CEO: Anders Runevad CFO: Marika Frederiksson IR: Hans Martin Hansen Phone number: +45 97 30 00 00

Svenska Handelsbanken AB (publ) Stockholm

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Blasieholmstorg 11 SE-106 70 Stockholm Tel. +46 8 701 10 00 Fax. +46 8 611 11 80

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Handelsbanken Markets Securities, Inc. 875 Third Avenue, 4th Floor New York, NY 10022-7218 Tel. +1 212 326 5153 Fax. +1 212 326 2730 FINRA, SIPC