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Green Street: Vestas keeps its poker face on while the transformation process continues

Vestas had its best poker face on when it reported its third-quarter financial results this week.

The Danish wind turbine manufacturer announced new cost-cutting measures, modified its guidance for the year and gave some colour on the uncertainties it faces as the end of 2012 approaches.

But once again, some of the big questions were declared out of bounds, leaving analysts and commentators to try to read the smoke signals.

Firstly, can Vestas make it through the current crisis, and how close are its bank lenders to forcing through a rights issue? Closely watched free-cash-flow figures were significantly worse than expected, coming in at a negative €142m (negative $181m), compared with a positive €276m in the same quarter of 2011.

But chief financial officer Dag Andresen suggested that negotiations with banks are progressing, and Vestas expects to be able to return to normal financial covenant testing — suspended in July — by the end of the year.

Andresen seems to imply that the issue is simply one of “timing”, but one analyst sums up opinion by telling Green Street: “It’s hard to say what the banks will do for sure, but with the weak free cash flow guidance, the risk of an equity issue has certainly increased.”

Secondly, what has happened to the proposed “strategic co-operation” deal with Japan’s Mitsubishi Heavy Industries (MHI) that many of the same banks and analysts were so excited about when it was announced in August?

Chief executive Ditlev Engel refused to be drawn on whether talks with MHI are ongoing, emphasising that Vestas has had more than one enquiry about a possible offshore joint venture.

Nor did he elaborate on the link between talks about its offshore wind business and the proposed sale of a 20% stake in the company, which officials say is still “valid”.

Analysts interpreted these remarks as an “open invitation” to other potential investors, and perhaps another signal to MHI that it is not the only show in town.

One Danish press report suggests that — although talks are still on — Vestas officials are frustrated with MHI’s perceived caution and the appointment of what the Danes see as a relatively junior official as chief negotiator.

None of this is surprising, and Green Street pointed out back in August that a key issue is how much importance the Japanese company attaches to the Vestas deal, given the huge disparity in size between the two companies.

Vestas is a company in transformation and I believe many of the key questions are likely to be resolved over the next two quarters. But for now, it needs to keep wearing its best deadpan expression.

Ben Backwell's Green Street column gives Recharge readers a behind-the-scenes view of markets and corporate strategy.