Market complexities plus growth and new product launches temporarily impact Gamesa’s profitability; sales expanded, order intake increased 2.4-fold, and monetisation of the wind farm business accelerated
- The company expects the trend of recent quarters to reverse in 2012 and to attain profitability and free cash flow in line with annual guidance
- Main consolidated figures for 1Q 2012:
- Sales: 777 million euro (+33%)
- EBITDA: 32 million euro (-58%)
- EBIT: -5 million euro
- Net profit: -21 million euro
- 50 million euro in capital expenditure (wind turbines)
- NFD: 1,035 million euro (3.2x EBITDA). The progressive alignment of manufacturing to deliveries together with monetisation of the wind farm portfolio will gradually reduce net financial debt to annual guidance levels (<2.5x EBITDA)
- Order intake amounted to 687 MW (+136%) in the period, bringing the total pipeline to 1,776 MW
- Latin America+Southern Cone provided the greatest contribution to sales (30% of MW sold), followed by the US (27%) and India (19%)
- Wind farm development and sale business: monetisation accelerated, with agreements signed for 720 MW for delivery this year, with projected free cash flow of 200 million euro in 2012
- New cost optimisation measures that will begin to bear fruit in 2H 2012: reducing the unit cost of materials by 5% by 2013, rationalising manufacturing and optimising support functions to reduce annual costs by 30 million euro by 2013
The complex economic environment, volatility in many of the main wind markets, the new product launches and the industry’s seasonality had a temporary impact on Gamesa’s profitability and debt. Nevertheless, the company’s market and business diversification and the synergies between the wind turbine and farm activities enabled it to increase sales in the period, with a record 2.4-fold growth in turbine order intake (+136%, 687 MW) and to accelerate the strategy to monetise wind farm development and sales, primarily with the sale of 480 MW in the US.
Gamesa obtained consolidated sales of 777 million euro (+33%) in the first quarter of 2012, driven mainly by wind farm development and sales, offsetting the performance of the wind turbine division, which was affected by the decline in activity in China and India and the gradual alignment of manufacturing to deliveries.
Gamesa sold 510 MW. LATAM+Southern Cone were the main growth drivers in 2012, accounting for 30% of MW sold in the first quarter, followed by the US (27%), India (19%), Europe and RoW (19%) and China (6%).
Wind turbine order intake accelerated, expanding by 136% (2.4-fold) to 687 MW in the first quarter of 2012, compared with 291 MW signed in the first quarter of 2011. Gamesa’s pipeline stood at 1,776 MW (+4%) at the end of March 2012.
The macroeconomic and industry situation, growing price competition (mainly in China), and the costs of implementing new platforms worldwide had a temporary impact on group profitability: EBIT totalled -5 million euro and net profit amounted to -21 million euro.
As a result, the EBIT margin was -0.6%, including 2 million euro in restructuring costs: the decline in the wind turbine EBIT margin (-3%) was offset by greater returns in the wind farm development and sales area, which obtained EBIT of 3 million euro, compared with 0 in 1Q 2011.
Gradual recovery of profitability based on greater activity and cost optimisation
Gamesa expects the profitability of the wind turbine area and of the group to gradually recover in the coming quarters, especially in the second half of the year, due to a progressive rebound in activity, a smaller impact of new platform launches and the effects of new cost optimisation measures.
With a view to ensuring the company’s competitiveness and profit margins in a scenario of sluggish economic recovery and volatility in the industry, Gamesa has defined new optimisation measures which go beyond those already included in the 2011-2013 Business Plan, in three areas: reducing the cost of materials (in line with the commitment to reduce the Cost of Energy); rationalising manufacturing, in line with market trends; and optimising support functions, to obtain a more efficient organisation.
Gamesa expects these measures to reduce the unit cost of materials by 5% by 2013, rationalise manufacturing and reduce associated costs, and cut annual expenses by 30 million euro (i.e. a reduction in operating expenses with a cash impact) by 2013.
Materials costs will be cut through new designs and localisation in line with best practices in costs, among other measures. Gamesa will continue to rationalise manufacturing by concentrating and streamlining production and adapting it to demand on a region and product basis. To optimise support functions, the company will consolidate and trim centralised functions and implement standardised best practices throughout the organisation. Gamesa will also continue optimising capital expenditure, which will amount to 225-250 million euro in 2012.
Capex control and gradual reduction of debt in the coming months
Gamesa continues to focus on controlling capex, which totalled 50 million euro for the wind turbine area in 1Q 2012, used to open new plants in India and Brazil to meet demand there, adapt G97-2.0 MW production capacity in four different regions, and pursue R&D in new onshore and offshore platforms.
The group’s net financial debt amounted to 1,035 million euro at 31 March, attributable to the acceleration in the construction of wind farms with delivery scheduled for this year (which account for over 50% of NFD in 1Q 2012), the usual seasonal increase in working capital in the wind turbine division, and capital expenditure.
Gamesa projects that progressive alignment of wind turbine manufacturing to the delivery schedule plus monetisation of the wind farm pipeline in the coming quarters will contribute to reducing leverage to reach the guidance of 2.5 times group EBITDA.
A strong balance sheet will be a priority for Gamesa in 2012, and net free cash flow will be positive by the end of the year.
Order intake increased by 2.4-fold and the pipeline amounts to 1,776 MW
Despite greater market volatility, wind turbine order intake accelerated, expanding by 136% (2.4-fold) to 687 MW in the first quarter of 2012, compared with 291 MW signed in the first quarter of 2011.
Gamesa’s pipeline stood at 1,776 MW (+4%) at the end of March 2012.
The main sources of growth are Latin America+Southern Cone, which accounted for 17% of order intake, and the US, which accounted for 51%.
This growth is the result of the company’s sales and customer diversification strategy over the last two years, which has increased Gamesa’s presence in new wind markets and offset maturing demand in more traditional markets.
Latin America+Southern Cone, US and India provide the greatest contribution to sales
Gamesa’s wind turbine division was affected by the complex situation in the economy and the industry; nevertheless, the company’s market and business diversification remains a competitive advantage because of the diversified risk and the synergies between the wind turbine and wind farm divisions.
Gamesa sold 510 MW in the 1Q2012 (-12%), due to less activity in China and India and greater alignment of manufacturing to deliveries.
The company continued to seize growth opportunities in emerging markets, such as Latin America+Southern Cone, which were the main growth driver in 1Q 2012, accounting for 30% of MW sold, with Brazil and Mexico being the strongest contributors. The US accounted for 27% of MW sold, India for 19%, and Europe and the rest of the world for 19%. China accounted for 6% of total sales, impacted by the extension of the wind farm approval process.
Gamesa continued to expand its product offer, focusing on greater capacity turbines with larger rotors for all classes of wind. Along these lines, the company launched the new G114-2.0 MW Class IIIA to provide maximum performance at low wind sites. Notable progress was also made on the G97-2.0 MW, which accounted for more than 25% of MW sold in the period.
The operation and maintenance (O&M) services area remains key for Gamesa’s profitable growth, contributing recurring revenues, improving margins and generating cash flow.
The services business obtained 73 million euro in sales in 1Q 2012, and added reconditioning services for large components in Europe, for both Gamesa and third-party technology.
Development and sale of wind farms: 720 MW for delivery in the year, which will generate free cash flow of 200 million euro
Gamesa’s performance in the quarter reflected the competitive advantages and synergies of its wind farm development and sales activity, which accelerated its portfolio monetisation strategy with the sale of four wind projects in the US totalling 480 MW. This deal, with Canadian utility Algonquin, will provide around 700 million euro in revenues and 26 million euro in EBIT (i.e. the EBIT margin will be at the high end of the 2012 guidance for the wind turbine division: 2-4%).
The wind farm development and sale business currently has 720 MW signed for delivery in 2012 (6 times the 2011 figure). Completion of those deliveries will have a notable impact on the company’s balance sheet, providing this division a free cash flow (net of capex) of 200 million euro and reducing the division’s debt to 250 million euro.
In the first quarter of 2012, this activity obtained 394 million euro in sales (17 million euro in 1Q 2011) and 3 million euro in EBIT.
Gamesa has a total of 834 MW in the final phases of construction and commissioning, primarily in Poland (152 MW being commissioned, with sale agreements) and the US (150 MW under construction and 130 MW being commissioned, all covered by sale agreements). The construction of an additional 200 MW in the US commenced in April.
At 31 March 2012, Gamesa’s wind farm pipeline amounted to 23,752 MW at various stages of development worldwide.
Source: Gamesa website