Update Credit Research 9 February 6 Vestas Wind Systems Industry (GICS): Electrical Equipment Sector (Nordea): Capital Goods BB+ Stable Key info Country Bloomberg debt Bloomberg equity Moody's S&P Market cap. (bn) Nordea Markets - Analysts Mark Schindele Chief analyst, Credit mark.schindele@nordea.com Andreas Zsiga Chief analyst, Credit andreas.zsiga@nordea.com Revenues and,,6,,, 8 6 Denmark VWSDC Corp VWS DC NR/--- NR/--- EUR.3/DKK 9.89 +6 565 983 +6 565 985, 9, 8, 7, 6, 5,, 3,,, 7 9 3 5E 7E Revenues Revenues, credit case, credit case Debt, debt/,.5 x. x.5 x. x.5 x. x (.5 x) (. x) (.5 x) (. x) 6E 8E Debt Debt, credit case Debt/, credit case Debt/,5, 5-5 -, -,5 -, -,5-3, Strong across the board Vestas' year-end 5 report was strong across the board. In addition, management raised FY 6 guidance more than the market anticipated. The absence of a share repurchase programme has fuelled speculations that Vestas might be accumulating cash in order to prepare for a larger acquisition. While we think the bonds offer good value, headline risk could temper the positive momentum in VWSDC. Improved cost position Vestas again positively surprised the market with a Q report that was stronger than expected. FY 5 sales rose on higher volumes and positive F/X, while earnings increased from an improved cost position. Vestas' strong order intake in FY 5 was primarily driven by the US but also reflects benign growth in all of Vestas' key markets. Very strong financial profile With debt/ (adj) at -.x, Vestas's financial profile is currently very strong. Given management's higher-than-anticipated financial guidance for FY 6, the financial profile is set to strengthen even further. The absence of a share buyback announcement has fuelled speculation that Vestas might be accumulating cash in order to prepare for a larger acquisition, although it would look inconsistent with management's repeated focus on organic growth and financial prudence. Headline risks could temper positive momentum in bonds The strong report underpins Vestas' positive credit trend, which could create upward pressure on our shadow rating. While we think the bonds offer good value, emerging headline risk could temper the positive momentum in VWSDC. Key credit metrics and ratios (adjusted numbers) 8 9 77 5 3% % EBIT 69 6 % 5% Shareholders' equity,587,5 Debt 5 Debt/(Debt+Equity).. FFO/Debt 33.5% FOCF/Debt -76.5% -698.% DCF/Debt -76.5% -698.% interest coverage 3. 7. Debt/.. ROC 5.%.8% 883 3% 79 7%,75 8. 7.% -9.% -9.% 8.. 5.% 37 6% -7 %,576 78. 6.6%.8%.8%.8. -.8%,5 5% %,6,7..% -9.5% -9.5%...5% 3 66 % 3 %,5 7. 65.7% 36.6% 36.6%.3. 9.% 976 % 57 8%,379-758 -.5-3.8% -5.6% -5.6% 8.5 -.8 33.% 5E,53 5% 87 %,899 -,3 -. -76.8% -73.% -65.%.5 -. 5.9% 6E, 5%,8 %,866 -,679 -. -67.3% -6.5% -3.5% 35.7 -. 77.% 7E, 5%,6 % 3,8 -, -55.% -8.% -7.% 55. 78.5% IMPORTANT INFORMATION AND DISCLOSURES AT THE END OF THIS REPORT Markets
Vestas Wind Systems 9 February 6 Recent development and business outlook 5 ended on a strong note with higher volumes and improved costs driving profitability. Vestas' financial risk profile is set to strengthen further, creating upward pressure on our shadow rating. Although we think the bonds offer good value, headline risk could temper the positive momentum in VWSDC. Higher sales and improved costs driving profitability 5 sales were up % thanks to higher volumes and positive FX. Gross profit (up 8%) was boosted by higher sales, improved project margins and growth in the service business. The 5 EBIT margin before special items reached.% (8.%). Strong order intake in 5 was primarily the result of the US market, but also reflects benign growth in all of Vestas' key markets. Average turbine selling prices ( per MW) fell back slightly in Q to levels seen in recent quarters. Fixed costs down to 7.7% of sales in 5 from 9% in. Service revenue reached EUR.bn in 5, or 3% of sales. Guidance for 6: sales of a minimum EUR 9bn, EBIT margin of a minimum %, total investments of EUR ~5m and free cash flow (including the acquisition of Avalon) of a minimum EUR 6m. The equity ratio was lowered to a 3-35% range (from a minimum 35%) to allow greater flexibility to make shareholder returns. Gross margin.% 8.% 6.%.%.%.% 8.% 6.%.%.%.% 3 5 Gross margin, % Order intake, MW 35 3 5 5 5 Q/ Q/ Q3/ Q/ Q/ Q/ Q3/ Q/ Q/3 Q/3 Q3/3 Q/3 Q/ Q/ Q3/ Q/ Q/5 Q/5 Q3/5 Q/5 Order intake, wind turbines (MW) m moving avg Fixed cost base 9 8 7 6 5 3 9.9%.%.% 9.% 8.7% 8.% 8.% 7.7% 8.% Q3/ Q/ Q/5 Q/5 Q3/5 Q/5 Fixed costs (LTM), Average selling prices of order intake, EUR/MW.5..3...9.8.7.6.5 % of sales Avg selling prices of order intake (EUR/MW) 6.%.%.%.% Maintaining a very strong financial profile With debt/adjusted at -.x, Vestas' financial profile is currently very strong. Given management's higher-than-anticipated guidance for 6, the financial profile is set to strengthen even further. The absence of a share buyback announcement has fuelled speculation that Vestas might Nordea Markets
Vestas Wind Systems 9 February 6 be accumulating cash to prepare for a larger acquisition. In our view, Vestas has significant firepower to make a large acquisition; based on 6 guidance, we believe Vestas has the capacity to make up to EUR ~.6bn in acquisitions before hitting the x debt/ policy rate. This would look inconsistent with management's repeated focus on organic growth and financial prudence, though. In this context, we view the recent two acquisitions as bolt-ons to Vestas' rapidly growing service business, while a larger acquisition potentially including manufacturing capacity would likely be more complex and entail higher risk. Metrics look set to strengthen further in 6 and beyond in our credit base case scenario, which would likely increase the pressure from shareholders to launch a share repurchase programme. According to management, such programme would be based on "delivered results" in 6 rather than the actual guidance. On the equity side, however, we believe a EUR 6m share repurchase programme could be announced as early as Q 6. Debt and debt/.5 x. x.5 x. x.5 x. x (.5 x) (. x) (.5 x) (. x) 6E 8E Debt Debt, credit case Debt/, credit case Debt/,5, 5-5 -, -,5 -, -,5-3, Equity ratio, unadjusted 55.% 5.% 5.%.% 35.% 3.% 5.%.% 3 5E 6E 7E 8E Equity ratio (credit case), unadj Equity ratio, unadj Policy range, Vestas Headline risks could temper positive momentum in bonds The strong report and bright earnings outlook underpin Vestas' positive credit trend, creating upward pressure on our shadow rating. Although we think the bonds offer good value, headline risk could temper the positive momentum in VWSDC. VWSDC versus Nordic peers in EUR, z-spread 35 3 5 OTEVFH 3 3/ 9/6/ CARGOT 3 3/8 3/3/ VWSDC 3/ 3// 5 CRAFH / /3/8 KRAVFH / 5/7/9 HUHTAM 3 3/8 5// HUHTAM 3 / 6/5/7 5 3 5 6 7 Nordea Markets 3
Vestas Wind Systems 9 February 6 Reported numbers and forecasts Income statement Total revenue -growth Gross profit EBITA EBIT Net finance Pre-tax profit Taxes Net profit, continuing operations Discontinued operations Net profit to equity 8 5,9 5.%,.6% 79.7% 6.% 6.% 6 66-9 7 7 9 5,79 -.% 958 8.9% 69 9.% 5.9% 5.9% -7-79 5 5 6,9 36.%,3 9.% 68 9.9% 5 6.% 3.5% -7 38-8 56 56 5,836-5.7% 88 5.% 35 5.% -38 -.7% -6 -.% -93-53 -3-66 -66 7,6 3.6% 99 3.8% 99.% -7 -.% -697-9.7% -6-73 -5-963 -963 3 6,8-5.7%,35 7.% 5 8.3% 5.7%.7% -38-36 -6-8 -8 6,9 3.6%,3 9.% 977.% 67 8.8% 67 8.8% -8 53-3 39 39 5E 8,3.9%,638 9.%,58.9% 953.3% 96.8% 9 95-685 685 6E 9,.6%,9.%,.9%,7.%,7.% -3, -7 769 769 7E 9, -3.%,866.5%,366 5.%,56.6%,56.6% 5,7-89 78 78 (credit adj) EBIT (credit adj) Interest expense (credit adj) 77 69-5 5 6-7 883 79-5 37-7 -3,5-66 3-55 976 57-5,53 87-86,,8 -,,6-5 Balance Sheet Goodwill Other intangibles Tangible assets Shares associates Interest bearing assets Deferred tax assets Other non-interest bearing non-current assets Other non-current assets Non-current assets 8 3 3,3,886 9 3 9,6,67 3 7,7,966 3 93,898 333 3,78 6 8,86 78,8 3 5 56, 5,8 5 3,3 88 33,3 5E 5 35,79 5,6 6E 5 83,389 5,769 7E 5 53,9 5,759 Inventory Accounts receivable Other current assets Cash and cash equivalents Current assets,867, 9 83, 3,99 775 93 88 5,85,735 966 6 335,,56,9 375,,, 63 85,36,5 98 57 69 3,56,59, 65,8,696,899,5 6,765 5,976,6, 6,69 5,68,93,365 6,638 5,56 Assets held for sale 3 Total assets 6,37 7,959 7,66 7,689 6,97 5,6 6,997 8,587 8,37 7,95 Shareholders equity Minority interest,587,5,75,576,6,5,379,899,866 3,8 Deferred tax Convertible debt Long term interest bearing debt Non-current liabilities Pension provisions Other long-term provisions Other long-term liabilities Non-current liabilities 9 7 339 37 599 6 9 39,57 9 5,73 7,58 75,65 6 87 7 3 3 6 6 95 3 883 7 35 38 69 8 37 Short-term provisions Accounts payable Other current liabilities Short term interest bearing debt Current liabilities Liabilities for assets held for sale Total liabilities and equity,3 3,5 9,593 6,37,6 3,7,88 7,959,,3 3,55 7,66,563,7 6, 7,689,8,397 93 3,698 6,97 83,53 3,89 5,6 95,88 6,357 6,997,76 3,5,85 8,587,786 3,65-558,853 8,37,638 3,5-96,9 7,95 Cash and cash eq (credit adj) Total assets (credit adj) Shareholders equity (credit adj) Debt (credit adj) 7 6,55,587 5 7,79,5 8 6,993,75 8 9 7,59,576 78 3 6,9,6,7 7 5,3,5 7 55 5,63,379-758 69 6,66,899 -,3 3 6,96,866 -,679 6,835 3,8 -, Nordea Markets
Vestas Wind Systems 9 February 6 Cash flow statement Adj due to change in group structure Change in Provisions Other non-cash adjustments Net financials Dividends received Paid taxes Other Operating cash flow before NWC Change in NWC Operating cash flow CAPEX Free Operating cash flow Dividends paid Share issues / buybacks Discretionary cash flow Other investments / divestments Other Proceeds from sale of assets Net change to group borrowing/repayments Other Change in cash 8 79-9 3-8 65-338 77-668 -39-39 - -9-9 9 69 5-3 - 357-39 -3-88 -85 79-6 8-33 68 65-7 -3 59-535 56-789 -733-733 596-8 -65 35-5 -38-69 93 77 8-76 79-7 6 66 99 83-5 -97 3-3 -73-86 -359-359 83 73 3 5 73-8 -9-57 9 89,8-39,9,9 -,5-977 - -5-8 765 36,6-85 8 389,3,3 5E,58 3-9 -8,75 397,7-5,7-6 -36 795-8 687 6E, -3-63,7 6,69-88 78 - -6 - -,53 -,7 7E,366 5-9,9-9 88-3 58-3 35 - -5 Adjusted metrics Funds from operations (FFO) (adj) Operating cash flow (OCF) (adj) Free operating cash flow (FOCF) (adj) Discretionary cash flow (DCF) (adj) 66 97-39 -39 - -88-88 6 85-775 -775 9 875 6 6 55-3 -37-37 5,87 98 98 787,6 876 876,98,53,7 93,3,3 78 579,3 9 58 35 Key ratios Profitability ROC ROIC after tax ROE after tax Debt & Interest coverage FFO/Debt FOCF/Debt DCF/Debt interest coverage FFO cash interest coverage Leverage Debt/ Equity ratio Debt/(Debt+Equity) Capital expenditure CAPEX/Depreciation and amortisation CAPEX/Sales Working capital ratios Inventory turnover (days) Receivables turnover (days) Days sales outstanding (days) Per share data EPS EPS (adj.) DPS BVPS Equity valuation and yield Market cap. Enterprise value P/E P/BV EV/Sales EV/ Dividend yield Payout ratio 8 5.% 9.% 33.9% 8-76.5% -76.5% 3. 8. 5.%. 8 -.95. 8 77 77 6 8.5.5. 8.6 8 7,55 7,39 6..8.3 9.9.%.% 9.8%.% 6.% 9 33.5% -698.% -698.% 7. -5.6 9. 3.9%. 9-3.75.6 9 8 56 76 9.6.6..5 9 8,679 8,5 66.3 3..7 8..%.% 5.%.% 5.9% 7.% -9.% -9.% 8. -5.9. 39.%. -.. 5 59.77.5. 3.5,8 5,393 3.9.7.8 7.9.%.% -.8% -.9% -6.% 6.6%.8%.8%.8 -.. 33.5%. -.8.3 59 78 98 -.8 -.7..6,699,.7. 7..%.%.5%.% -5.9%.% -9.5% -9.5%.. 3.3%. -.9. 6 5 -.7.57. 8. 867,767.5. 5.9.%.% 3 9.% 7.8% -5.% 3 65.7% 36.6% 36.6%.3 -.9 3. 7.%. 3 -.59. 3 85 59 5 3 -..3. 7.5 3,35,68.9.7 8.5.%.% 33.% 36.6%.% -3.8% -5.6% -5.6% 8.5-6.9 -.8 3.% -.5 -.77. 8 58 5.8.67.5.7 6,777 5,366 6.5.8.8 5.5.7%.% 5E 5.9% 85.7% 6.% 5E -76.8% -73.% -65.%.5 5E -. 33.8% -. 5E -..5 5E 8 5 76 5E 3.9.88.9 3. 5E, 9,8 7.8.. 7.8.7% 6.9% 6E 77.% 6.3% 6.7% 6E -67.3% -6.5% -3.5% 35.7 6E -. 35.7% -. 6E -.8.5 6E 8 55 69 6E 3.57 3.57. 3.6 6E,6 9,35 5... 6.7.9% 6.3% 7E 78.5% 7.%.9% 7E -55.% -8.% -7.% 55. 7E 3.% 7E -.97.3 7E 8 55 66 7E 3.7 3.68. 6. 7E,6 9,.8 3.. 6.6.9% 9.5% Nordea Markets 5
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Vestas Wind Systems 9 February 6 Analyst Shareholding Nordea Markets analysts do not hold shares in the companies that they cover. No holdings or other affiliations by analysts or associates. Market-making obligations and other significant financial interest Nordea Markets has no market-making obligations in Vestas Wind Systems. Recommendation definitions Outperform Over the next three months, the fixed income instrument's total return is expected to exceed the total return of the relevant benchmark. Investment banking transactions Nordea Markets has ongoing or completed public investment banking transactions with Vestas Wind Systems. Market perform Over the next three months, the fixed income instrument's total return is expected to be below the total return of the relevant benchmark. Underperform Over the next three months, the fixed income instrument's total return is expected to be below the total return of the relevant benchmark. All research is produced on an ad hoc basis and will be updated when the circumstances require it. Distribution of recommendations Recommendation Outperform Market perform Under perform Total As of October 5 Count 75 9 6 % Distribution 9% 5% 9% % Distribution of recommendations (transactions)* Recommendation Outperform Market perform Under perform Count 6 8 % Distribution Total 8 As of October 5 * Companies under coverage with which Nordea has ongoing or completed public investment banking transactions. % 6% % % Issuer Review This report has not been reviewed by the Issuer prior to publication. Nordea Bank AB (publ) Nordea Bank Danmark A/S Nordea Bank Finland Plc Nordea Bank Norge ASA Nordea Markets Division, Equities Nordea Markets Division, Equities Nordea Markets Division, Equities Nordea Markets Division, Equities Hamngatan Strandgade 3 (PO Box 85) Aleksis Kiven katu 9, Helsinki Essendropsgate 7 SE-5 7 Stockholm DK-9 Copenhagen C FI- Nordea N-368 Oslo Sweden Denmark Finland Norway Tel: +6 8 6 7 Tel: +5 3333 3333 Tel: +358 9 65 Tel: +7 9 3 Fax: +6 8 53 9 6 Fax: +5 3333 5 Fax: +358 9 65 597 Fax: +7 56 865 Reg.no. 566- Reg.no.69 593 Reg.no. 399.36 Reg.no. 9 Stockholm Copenhagen Helsinki Oslo