Jan. 4 (Bloomberg) -- Vestas Wind Systems A/S, the biggest wind-turbine maker, fell to its lowest since 2003 in Copenhagen after cutting its sales forecast, prompting analysts to say management’s future and chances to avoid a bid may be in doubt.
Reducing its revenue and profit outlook for the second time in two months yesterday was “another blow to investor confidence” in the Aarhus, Denmark-based manufacturer, which already was at an “all-time low,” said Sean McLoughlin, vice president of clean technology research at HSBC Bank Plc.
Vestas, whose shares have lost 92 percent from a 2008 high, blamed higher costs and delayed wind farms, helping drive down shares in rivals Gamesa Corp. Tecnologica SA of Spain and India’s Suzlon Energy Ltd. Its plan to unveil a restructuring on Jan. 12 without giving a hint of its nature left analysts questioning management’s credibility.
Chief Executive Officer Ditlev Engel may face investor pressure to resign as stumbling in the second half of 2011 was related to “bad execution” rather than turbine demand, said Julien Desmaretz, an analyst at investment bank Bryan, Garnier & Co., who lowered his rating to “neutral” from “buy.”
Michael Holm, a spokesman for Vestas, brushed aside takeover speculation saying, “We are for sale every day on the stock exchange.” He said questions about the impact on management will be answered next week by Engel.
‘No More Credibility’
“Investors are willing to see a new management on board because the current one has no more credibility,” he said. “Vestas struggled to deliver according to its plan and that is the main problem.”
The stock closed down 19 percent at 56.25 kroner. local time. Vestas’ 600 million euros of 4.625 percent bonds that mature in 2015 fell 3.2 percent to 84.50, the lowest price since the bonds were sold in March 2010.
“The cheaper it gets the more attractive takeover target it becomes,” McLoughlin said. The possibility of a bid on Vestas is “modest” at the current price though increases “as the shares drift towards 50 kroner,” Arnaud Brossard, an analyst at Exane BNP Paribas, wrote in a note.
Vestas and U.S. rival General Electric Co. are suffering from slower demand growth and narrowing margins caused by subsidy cuts in Europe and rising competition from Asian turbine makers such as China’s Sinovel Wind Group Co., the world’s second biggest, according to a BTM Consult ranking.
Restructuring Plan
The Danish company said yesterday it would announce a “significant change of the whole organization” on Jan. 12, giving no details except that it wouldn’t involve tapping equity markets or seeking a strategic investor.
“Only a large group would be able to handle the required R&D investments and the likely continued price war in the wind industry in the coming years,” Brossard said. He mentioned General Electric Co., Siemens AG and United Technologies Corp. as large industrial groups already involved in wind.
The company has “a good product portfolio and customer base, which is always attractive for a bidder,” Desmaretz said. “I still see a lot of value in Vestas.”
Vestas said it would defer 400 million euros in 2011 revenue to this year because of delays in connecting wind farms to power grids and bad weather stalling construction of several projects. Its forecast for earnings before interest and tax for last year was reduced from about 255 million euros to zero. Ebit margin forecasts were cut Oct. 30.
The restructuring “could actually be a damp squib rather than necessarily a new beginning,” McLoughlin said today by phone. It will likely increase volatility in the stock while investors speculate over its nature, he said, downgrading his rating from “neutral” to “underweight.”
Cost Cuts
The company will likely announce a cost-saving program to help 2012 margins, Desmaretz said in an interview. Vestas may choose to locate more of its production facilities outside of Europe in Asia or the South American market, he said.
Rupesh Madlani, an analyst in London at Barclays Capital, was more positive, saying today in an e-mail that it may be a “turning point” for the company.
“The restructuring will involve a leaner, more customer focused business model with fewer operating regions and a more globalized approach to managing customer relationships, the supply chain and capacity,” Madlani said.
Delays at the company’s Travemuende generator factory in Germany during the third quarter led to late delivery and commissioning of projects, meaning Vestas had to push revenue into this year.
Wind Rivals
Gamesa Corp. fell as much as 5.9 percent today. Haakon Levy, an Oslo-based analyst at DNB Markets, has a “sell” recommendation the Spanish turbine maker due to its loss of market share and deteriorating earnings.
“Vestas’ very high order intake in 2011 that was announced yesterday confirms our view that Vestas is actually gaining market share at the expense of smaller and mid-sized European players such as Nordex and Gamesa,” Levy said today by e-mail. Suzlon fell as much as 3.5 percent.
Vestas announced cost overruns of 125 million euros linked to development of the company’s V112-3.0 megawatt turbine model and GridStreamer technology for its 2-megawatt design.
Both Gamesa and Nordex are boosting production of new products, according to Desmaretz. “Market may fear similar cost overruns for them too,” he said.
“The only read-across from yesterday to other stocks is in the negative commentary on the renewal of the production tax credit in the U.S.,” Martin Prozesky, an analyst at Sanford C Bernstein Ltd., said in an e-mail. The so-called production tax credit that gives an incentive to turbine operators is due to expire at the end of this year. Engel said in November U.S. turbine sales may “fall off a cliff” unless it’s extended.
Zero Ebit
Vestas now expects sales of about 6 billion euros for 2011, down from the 6.4 billion euros it forecast on Oct. 30, which itself was a reduction from 7 billion euros.
About 130 million euros of the shortfall in Ebit is due to last year’s delays and revenue deferral while the development costs of the V112-3.0 model and GridStreamer would absorb 100 million euros, according to Vestas.
As a result, the company’s Ebit margin will be “approximately zero percent” down from about 4 percent with cash flow remaining positive in 2011.
Delays relating to weather, connecting wind plants to the grid “and other disruptions” meant some projects would not be counted as revenue until the first quarter of this year.
Orders Increase
Vestas also said it had orders for turbines with 7.4 gigawatts of capacity last year worth 7.3 billion euros, in step with its forecast of between 7 gigawatts and 8 gigawatts. Some customers postponed signing contracts for a “number of major orders from 2011 to 2012,” according to the statement.
The company could become a takeover target, according to Desmaretz. Potential bidders could be a large electrical company. Alternatively, a Chinese or Korean company seeking European or U.S. markets may be tempted by Vestas’s track record in the biggest wind markets.
The delayed turbine orders mostly were from customers in Europe, the company said during the call yesterday, and most fourth-quarter sales originated in Europe.
Vestas is scheduled to announce full-year orders data in its annual report on Feb. 8.
--Editors: Todd White, Reed Landberg
To contact the reporters on this story: Sally Bakewell in London at sbakewell1@bloomberg.net; Justin Doom in New York at jdoom1@bloomberg.net
To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net
Thursday, 5 January 2012
SSE reaches one gigawatt milestone for its onshore wind farms
As storms battered the country, the energy giant SSE yesterday said it had more than one gigawatt of onshore wind-farm capacity in operation for the first time, enough to power 800,000 homes for a year.
SSE, which operates in the London area as Southern Electric, said that solid progress at its wind sites in Clyde, Griffin and Gordonbush in Scotland and Slieve Kirk in Northern Ireland meant that its onshore wind capacity had increased from 40 megawatts six years ago to more than 1.15gw now. This means that onshore wind now represents just over a 10th of SSE's generation capacity.
Ian Marchant, the chief executive, said: "The safe and timely delivery of new assets is a priority for SSE and passing the one gigawatt milestone for onshore wind-farm capacity is a very positive development as we start the new year." The company has 30 onshore wind farms in operation with another 48 projects in progress.
SSE, which operates in the London area as Southern Electric, said that solid progress at its wind sites in Clyde, Griffin and Gordonbush in Scotland and Slieve Kirk in Northern Ireland meant that its onshore wind capacity had increased from 40 megawatts six years ago to more than 1.15gw now. This means that onshore wind now represents just over a 10th of SSE's generation capacity.
Ian Marchant, the chief executive, said: "The safe and timely delivery of new assets is a priority for SSE and passing the one gigawatt milestone for onshore wind-farm capacity is a very positive development as we start the new year." The company has 30 onshore wind farms in operation with another 48 projects in progress.
Government appeals against ruling that solar subsidy cuts were illegal
Proposed cuts to the solar feed-in tariffs were essential to making scheme successful, government tells high court
• Read government's appeal in full
Damian Carrington and Adam Vaughan
guardian.co.uk, Wednesday 4 January 2012 18.03 GMT
The government lodged an appeal on Wednesday against a judge's ruling that its cuts to solar power subsidies were illegal, arguing that the cuts were essential to encourage as many homeowners as possible to install renewable energy. The government will also argue that the judge's ruling was premature, as the final decision to slash the solar subsidies had not been taken at the time.
The proposal in October by the department of energy and climate change (DECC) to cut the support for solar panels by 50% caused uproar in the industry, who claimed thousands of jobs would be lost, and that it deeply undermined the government's claim to be the "greenest ever". Ministers said the cost of the panels had dropped and unless the subsidy was also cut, the available funding would be rapidly exhausted.
A DECC spokesman said: "We have lodged grounds of appeal with the court. We hope that permission will be granted for an appeal and that we can secure a hearing as soon as possible, so that we can provide clarity for consumers and industry on the way forward." A decision on whether the appeal can go ahead could come as early as Thursday. Climate minister Greg Bark tweeted that "Timing up to Courts but hope to resolve well before the end of the month."
"The high court's decision was based on the view that the proposed approach to implementing new tariffs for solar PV is inconsistent with the Fit scheme's statutory purpose of encouraging small-scale low-carbon electricity generation," said the spokesman.
He said DECC disagreed with this, arguing that: "The overriding aim of the proposed reduction in tariffs for solar PV is to ensure that over the long term as many people as possible are encouraged to install small-scale low-carbon generation. Without an urgent reduction in the current tariffs, which give a very generous return, the budget for the scheme would be severely depleted and there would be very little available for future solar PV generators, or for other technologies."
In December, a high court judge ruled that the government's handling of cuts to solar feed-in tariffs was "legally flawed", following a challenge by two solar companies, SolarCentury and HomeSun, plus Friends of the Earth. The implications of Justice Mitting's verdict are not yet clear, but could open the door to thousands of householders claiming a higher rate of payments.
Friends of the Earth called the appeal a waste of public money. The group's head of campaigns, Andrew Pendleton, said: "Trying to appeal the high court's ruling is an expensive waste of taxpayers' money. The government must expand the scheme – with all the tax revenue the scheme generates, this can be done at no extra cost to bill payers. Ministers should end business uncertainty and protect jobs with a clear plan to reduce payments from February – in line with falling installation costs."
In October, the cuts to the solar scheme – from 43.3p per kWh of energy generated to 21p – were leaked online. Climate minister Greg Barker defended the cuts as necessary to protect the scheme long-term. "The plummeting costs of solar mean we've got no option but to act so that we stay within budget, and not threaten the whole viability of the Fits [feed-in tariff] scheme."
The cuts prompted a furious backlash from the solar industry and green groups, with the chief complaint being the speed of the changes, which were to come into effect just six weeks later, on 12 December. Critics also drew attention to the fact that the consultation did not end until 23 December – over a week after the changes were proposed to take place.
In December, a cross-party group of MPs said in a strongly worded report that said the reductions were "clumsily handled", had threatened jobs and could have dealt a fatal blow to the scheme, because the changes required homes to meet the C-rated energy efficiency standard before becoming eligible for the solar feed-in tariff.
• Read government's appeal in full
Damian Carrington and Adam Vaughan
guardian.co.uk, Wednesday 4 January 2012 18.03 GMT
The government lodged an appeal on Wednesday against a judge's ruling that its cuts to solar power subsidies were illegal, arguing that the cuts were essential to encourage as many homeowners as possible to install renewable energy. The government will also argue that the judge's ruling was premature, as the final decision to slash the solar subsidies had not been taken at the time.
The proposal in October by the department of energy and climate change (DECC) to cut the support for solar panels by 50% caused uproar in the industry, who claimed thousands of jobs would be lost, and that it deeply undermined the government's claim to be the "greenest ever". Ministers said the cost of the panels had dropped and unless the subsidy was also cut, the available funding would be rapidly exhausted.
A DECC spokesman said: "We have lodged grounds of appeal with the court. We hope that permission will be granted for an appeal and that we can secure a hearing as soon as possible, so that we can provide clarity for consumers and industry on the way forward." A decision on whether the appeal can go ahead could come as early as Thursday. Climate minister Greg Bark tweeted that "Timing up to Courts but hope to resolve well before the end of the month."
"The high court's decision was based on the view that the proposed approach to implementing new tariffs for solar PV is inconsistent with the Fit scheme's statutory purpose of encouraging small-scale low-carbon electricity generation," said the spokesman.
He said DECC disagreed with this, arguing that: "The overriding aim of the proposed reduction in tariffs for solar PV is to ensure that over the long term as many people as possible are encouraged to install small-scale low-carbon generation. Without an urgent reduction in the current tariffs, which give a very generous return, the budget for the scheme would be severely depleted and there would be very little available for future solar PV generators, or for other technologies."
In December, a high court judge ruled that the government's handling of cuts to solar feed-in tariffs was "legally flawed", following a challenge by two solar companies, SolarCentury and HomeSun, plus Friends of the Earth. The implications of Justice Mitting's verdict are not yet clear, but could open the door to thousands of householders claiming a higher rate of payments.
Friends of the Earth called the appeal a waste of public money. The group's head of campaigns, Andrew Pendleton, said: "Trying to appeal the high court's ruling is an expensive waste of taxpayers' money. The government must expand the scheme – with all the tax revenue the scheme generates, this can be done at no extra cost to bill payers. Ministers should end business uncertainty and protect jobs with a clear plan to reduce payments from February – in line with falling installation costs."
In October, the cuts to the solar scheme – from 43.3p per kWh of energy generated to 21p – were leaked online. Climate minister Greg Barker defended the cuts as necessary to protect the scheme long-term. "The plummeting costs of solar mean we've got no option but to act so that we stay within budget, and not threaten the whole viability of the Fits [feed-in tariff] scheme."
The cuts prompted a furious backlash from the solar industry and green groups, with the chief complaint being the speed of the changes, which were to come into effect just six weeks later, on 12 December. Critics also drew attention to the fact that the consultation did not end until 23 December – over a week after the changes were proposed to take place.
In December, a cross-party group of MPs said in a strongly worded report that said the reductions were "clumsily handled", had threatened jobs and could have dealt a fatal blow to the scheme, because the changes required homes to meet the C-rated energy efficiency standard before becoming eligible for the solar feed-in tariff.