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Turnaround 'In Style': Vestas Posts First Profit Since 2011

Turnaround 'In Style': Vestas Posts First Profit Since 2011

Vestas Wind Systems A/S (VWS), the world's biggest wind-turbine manufacturer, is seeking to raise capital after a two-year turnaround program dragged the company out of debt and resulted in its first quarterly profit since mid-2011.

Net income in the fourth quarter was 218 million euros ($295 million), Aarhus, Denmark-based Vestas said in a statement yesterday. That surpassed analysts' expectations and beat the company's forecast for revenue, cash flow and margins.

The results cap an effort to reduce fixed costs by cutting more than 30 percent of the workforce and selling or closing 12 of 31 factories. The company is recovering from a slump during which its shares tumbled more than 96 percent from June 2008 to November 2012, and said issuing new shares will provide more financial stability as it seeks to generate new business.

"Vestas has definitely experienced how expensive it is to be poor; it's extremely expensive to talk with your bank," Jacob Pedersen, an analyst at Sydbank A/S, said in a phone interview. "Now it has no net debt and is in no critical need of money. That's why it's the perfect time to go into the market and say 'we want money.'"

The company plans to sell as many as 20.4 million new shares through a private placement at market price, equivalent to 9.99 percent of existing stock. The shares will be offered to professional and institutional investors in Denmark and abroad.

Cost Cuts

"That is to increase our competitiveness and have a solid financial position in order to capture better business," Chief Executive Officer Anders Runevad said today in a Bloomberg Television interview.

The announcements came after the close of regular trading in Copenhagen yesterday. Vestas today declined as much as 6.5 percent, the most in a week, and was down 5.4 percent to 169 kroner at 10:00 a.m. The stock increased fivefold in 2013 and is up another 5.6 percent this year.

Vestas ended the year with a net cash position of 86 million euros, compared with a net debt of 900 million euros at the end of 2012, according to the results.

Vestas delivered more cost cuts than planned over the two-year period and the results provide a boost to Runevad, who took over from Ditlev Engel in September.

"We have delivered on our turnaround plan when it comes to fixed costs, when it comes to lower investment and when it comes to free cash flow and we clearly see that now," Runevad said. "Our vision going forward is definitely to grow faster than the market." Photographer: Freya Ingrid Morales/Bloomberg

A wind turbine blade, manufactured by Vestas Wind Systems A/S, sits waiting to be... Read More

The company expects revenue of at least 6 billion euros in 2014, a margin of at least 5 percent on earnings before interest and taxes and a minimum of 300 million euros of free cash flow.

Delivering 'In Style'

Revenue in 2013 was 6.1 billion euros, exceeding the company's forecast of 5.5 billion euros. The 3.5 percent Ebit margin for the year beat its guidance of at least 2 percent, and its free cash flow of just over a billion euros also was above its most recent forecast.

The company's full-year loss narrowed to 82 million euros from 963 million euros in 2012. Turbine orders rose by 60 percent to 5,964 megawatts.

The quarterly profit exceeded 160 million euros, the average of 10 analysts' estimates compiled by Bloomberg.

The company "delivered in style," said Pedersen, who had expected net income of 113 million euros in the fourth quarter and rates Vestas a buy. The share sale is "the best way, the cheapest way and the right tactic," to raise money.

The company's turnaround plan had called for lowering fixed costs by at least 400 million euros from the end of 2011, and a reduction in its workforce to a maximum of 16,000 from 22,721. It ended 2013 with 15,497 employees, after cutting fixed costs by 484 million euros.

Sharper Focus

"Comprehensive cost savings have been carried out while the divestment and outsourcing of non-core activities have sharpened our focus," Chairman Bert Nordberg said in the annual report. "We have transformed Vestas into a more lean, flexible and scalable company."

In its annual report, Vestas also signaled a "general intention" in the future to recommend a dividend of 25 percent to 30 percent of the year's net result, so long as targets for net debt and solvency are met. Vestas last paid a cash dividend to shareholders in 2003.

Vestas also arranged a five-year 850 million-euro revolving credit facility with Nordea Bank AB, DNB ASA, HSBC Holdings Plc and Skandinaviska Enskilda Banken AB. The facility replaces an existing 650 million-euro line and has "attractive terms that reflect the improved credit profile," the company said.

The revised credit facility marks a turnaround from 2012, when Vestas's creditors waived tests to determine whether the manufacturer had breached the terms of its loans. In November of that year, the company's banks renegotiated its debt, cutting a loan facility to 900 million euros from 1.3 billion euros, and making it repayable a year earlier.

Copyright 2014 Bloomberg

Lead image: Wind turbines via Shutterstock


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