Vestas (Buy)
Year of the Tiger – a turning point for Vestasturning point for Vestas
in China?
Senior Equity AnalystChristian Nagstrup
Jyske Banky2011
1
BUY, Price target DKK 250
• Strong order intake has reduced uncertainty• Upside to Vestas’ 2011-guidanceUpside to Vestas 2011 guidance• We do not expect Vestas to issue new shares• Low valuation: P/E (2011) 14.0X and P/E (2012) 9.8X
Price targetFair 12 months
value price target1 Weight Score4 Comment
DCF 359 393 10%
Relative2 223 244 40%
Sentiment 210 230 50% 6.6 Reduced uncertainty
Price target 252 100%
2
Agenda
1) The importance of China to Vestas (2 slides)
2) Energy and wind power development in China (5 slides)
3) The Chinese market structure (13 slides)3) The Chinese market structure (13 slides) Legislation, Pricing, Customers etc.
4) Competive situation (23 slides)
5) M k t t ti l f V t / JB ti t (12 lid )5) Market potential for Vestas / JB estimates (12 slides)
6) Valuation (5 slides)3
6) Valuation (5 slides)
Why do we focus on China?
• Vestas’ order intake in China has quadroupled to a new record of 972 MW in 2010
• Record-high Chinese exposure in 2010 (19% of volume)
• Vestas has invested EUR 400m in 1.6 GW of annual production capacity in China
• The 12th Five-year plan is due to come into effect in March 2011 and it will significantly impact the future of wind power2011, and it will significantly impact the future of wind power in China and thereby Vestas’ future in China
4
Conclusion
• We have been very positive on Vestas’ activities in China since Q1 2010
• Our research has confirmed our positive view in the short term 2011 has developed like 2010 so farp
• We expect the central government to increase its wind power t t f 2020 i M h 2011target for 2020 in March 2011
• China will NOT add to growth for Vestas in the medium and• China will NOT add to growth for Vestas in the medium and long term, which has been a surprise
5
China is the world’s largestChina is the world s largest market for wind turbines
• China and the US now account for 62% of the world market• China will remain #1 during 2010-14 according to BTM• Measured by accumulated installations the US is still no. 1,
but this will change in 2011The US and China’s share of new global installed wind
50%
60%
70%The US and China s share of new global installed wind energy capacity (MW) 2000-2014E
30%
40%
%
0%
10%
20%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
China USA
6Source: Jyske Bank and BTM Consult
ENERGY AND WIND POWER DEVELOPMENT IN CHINADEVELOPMENT IN CHINA
(5 SLIDES)( )
7
Chinese Energy Consumption
• Chinese energy consumption doubled from 2000 to 2007• Wind accounts for 0.4% of energy production
Energy consumption development in China 2000 2007
• China is still Coal Country
1,800,000
2,000,000
nt)
Distribution of Electricity Production in China2005 2006 2007
Electricity production (GWh) 2,499,564 2,864,205 3,279,233
China 2000-2007
1,400,000
1,600,000
Ener
gy u
set o
f oil
equi
vale
n
Sources of electricity production (% of total)
Coal 78.9 80.4 81.0
Hydroelectric 15.9 15.2 14.8
1,000,000
1,200,000
2000 2001 2002 2003 2004 2005 2006 2007
(kt
Oil 2.4 1.8 1.0
Nuclear 2.1 1.9 1.9
Natural gas 0.5 0.5 0.9
Source: Jyske Bank and The World Bank Group 8
Promising future for wind in China
120 000
Cumulative- and annual installed capacity in China 2003 – 2014E
80 000
100,000
120,000
40 000
60,000
80,000
MW
0
20,000
40,000
0
2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E
Cumulative Installed Capacity Annual Installed Capacity
9Source: Jyske Bank, China Wind Power Center, and BTM Concult
Good wind conditions in remoteGood wind conditions in remote areas
Distribution of effective wind power density
• 700-1200 GW wind power potential in China
Distribution of effective wind power density in China
• ~26 GW onshore wind installed end-2009a d d 00
• The best wind sites are l t d i t flocated in remote areas of China (mostly in the North)…
S Wi d P M thl
• … but energy consumption is concentrated in Eastern
10
Source: Wind Power Monthlyis concentrated in Eastern China
Grid capacity is a bottleneck
Map over the grid companies’ coverage
• No unified national grid
• Very little inter-grid connectivity
• Grid not geared to large amounts of wind power
• Lack of incentive for grid companies to connect wind
Source: Wang (2009) “Effective policies for renewable energy – the example of China’s wind power – lessons for China’s photovoltaic power”
companies to connect wind farms
11
Offshore is developingOffshore Projects Planned by ProvincesProvince Project Size Comment
Heibei Tangshan 100 MW
Shandong Changdao 48 MW First stage
1 5 GW Long term1.5 GW Long term
Weihai 10 MW First stage
1 GW Long term
Jiangsu Guanyun 100 MWXiangshui 200 MWBinhai 500 MWSheyang 100 MWDafeng 6 GW By 2020g
Dongtai 600 MW In two projects of 300 MW
Rudong 300 MWNantong 300 MW
Zhejiang Daishan 500 MWZhejiang Daishan 500 MW200 MW
Fujian Ningde 100-150 MW First stage
2 GW By 2020
12
Source: Jyske Bank and Wind Power Monthly
Guangdong Nan'ao 48 MW For Pilot
Zhanjiang 50 MW
CHINESE MARKET STRUCTURESTRUCTURE
(10 SLIDES)( )
13
The Legal Environment
• Energy Bureau of the National Development and Reform Commission
Renewable Energy Targets10% Renewable Energy by 2010
and 15% by 2020 100 GW by 2020
Grid Companies
Mandatory Grid
ProjectDevelopers
Mandatory
Wind Turbine Manufacturers
Reform Commission
• Renewable Energy Law of Mandatory Grid Connection of Wind Farms
Mandatory purchase of
Mandatory requirements of non-hydro renewables
Fixed feed in
R&D Support
Reduced tax
ab gy a othe People’s Republic of China (1 Jan 2006) was created to attract purchase of
electricity generated by wind farms
Renewable
Fixed feed-in tariff
Reduced VAT on power
rates
Tax rebate on import of
components
created to attract stakeholder interest…
energy surcharge levied on
customers
generation
Reduced income tax
components
70% local content
requirement
• … but is in reality just a “framework law” with vague stipulations, i.e.
14
g p ,flexible
Source: Jyske Bank and CWPC
2007 was busy year for energy2007 was busy year for energy lawmakers in China
• Medium and Long-term Development Plan for R bl E i Chi (2007)Renewable Energy in China (2007)– 3% renewable energy target for large utilities by 2010
and 8% by 2020 (sourcing, not production)
• Guidelines on Adjusting Import Taxes on High-Voltage Wind Turbines (2007)Voltage Wind Turbines (2007)– Higher import tariffs on turbines below 2.5 MW
• Approach of Grid Enterprises Purchasing Renewable Energy Electricity (2007)– Grid operators responsible for losses in connection
15
with grid connectivity problems for renewable energy
Legal milestones 2006-10
Fixed rate feed-in tariff Unofficial target revision:
Timeline of major legislative changes within the wind-power sector in China (2006-2010)
NDRC is responsible for projects > 50MW provincial
Renewable Energy Law Amendment:
system implemented for inland projects
Wind power given priority rights on grids
Domestic and
revision:150 GW by 2020
projects > 50MW, provincial govenrment for < 50MW
Renewable Energy Law:-Mandatory grid connection and p rchase of electricit b
-Renewable energy development plans shall include plans for grid improvement.-Minimum quotas on share
Targets established:-10% renewables by 2010 and 15%
Chinese controlled wind power companies are granted
VAT and import tariff
b t
Ban on turbines < 1MW in concessions
and purchase of electricity by grid companies.-Surcharges to be levied on consumers
of renewable energy.
Abolishment of the 70% local content requirement.
by 2020-5GW wind by 2010 and 30 GW by 2020
are granted tax levies.
rebate on certain wind turbine components
Target revision:100 GW by 2020
2006 2007 2008 2009 2010
Source: Jyske Bank
16
y
State vs. provincial wind projects
• Projects above 50 MW must be approved by the central government
• More state control indicates less provincial projects
Development and expected tendency of wind power projects above and below 50 MW
• More state control indicates less provincial projects
80%
100%
20%
40%
60%
0%
2005 2006 2007 2008 Expected Tendency
17
> 50 MW < 50 MW
Source: Jyske Bank and CWPC
The Chinese wind turbine industry
• Chinese wind power equipment based on European technology (licenses or joint development)
• Setup of government funds has supported development
• Small Chinese wind turbine manufacturers have low technological skills
• Chinese players have very different budget constraints relative to non-Chinese playersp y
18
83 Chinese turbine manufacturers
• Legislative action since 2007 has attracted many new players in the Chinese market
• Massive production overcapacity
80
90
• Massive production overcapacity
50
60
70
80
20
30
40
50
0
10
20
2007 2008 2009 2010
19Source: Jyske Bank and Wind Power Monthly, US National Foreign Trade Council, China Climate Change Info-Net, and Liao, Jochem, Zhang, and Farid “Wind power development and policies in China
Time for consolidation
• The central government has built up the local wind turbine industry in China and is now keen on consolidation
• China Machinery Industry Federation (government controlled• China Machinery Industry Federation (government controlled trade organization) only sees need for 10 GW of annual production capacity
• Only the strongest turbine manufacturers will survive due to new requirements
New requirements for manufacturers to be eligiblefor tax breaks, land use and government loansManufactures should be able to produce turbines of 2.5MW bMW or above
Annual capacity of at least 1 GW
At least 500 MW total installed capacity
Manufactures should have in house R&D facilities
20Source: Jyske Bank and Wind Power Monthly
Manufactures should have in-house R&D facilities
Turbine prices under pressure
• Turbine prices dropped as low as CNY 4,000/kW in 2010• Non-Chinese turbine manufacturers offer prices of CNY
5 000/kW
Development of turbine prices in Chinese concession projects
5,000/kW
21Source: Jyske Bank and CWEA
Main wind developers in China
The Largest Wind Power Developers in ChinaCompany Market share 2009 Capacity Installed in 2009
Longyuan 18 8% 2600 4 MWLongyuan 18.8% 2600.4 MW
Datang 12.6% 1739.9 MW
Huaneng 11.9% 1644.8 MW
Huadian 8 9% 1230 1 MWHuadian 8.9% 1230.1 MW
CGN wind 6.2% 854.5 MW
BEIH 5.8% 797.5 MW
Guohua 4.3% 590.3 MW
Source: Jyske Bank and CWEA
Guohua 4.3% 590.3 MW
• Top-3 installed 44% of all new capacity in 2009• Top-3 installed 44% of all new capacity in 2009• Top-5 installed 59% of all new capacity in 2009• Many small developers with insignificant market share
22
y p g• 90% of Chinese wind capacity controlled by state-owned
companies
Customer/supplier relationships
• Based on research on wind farms built up to 2007 we have identified the following customer/supplier relationships:relationships:
– Longyuan: Gamesa, Vestas, and Goldwind
– Datang: Vestas, Gamesa, and Suzlon
– Huaneng: Sinovel, Vestas, and Gamesa
– Huadian: Sinovel, Gamesa, Goldwind
• Since then focus has however moved towards Chinese manufacturers
23Source: Jyske Bank and CWPC
VESTAS’ COMPETITIVE SITUATION IN CHINASITUATION IN CHINA
(23 SLIDES)( )
24
Vestas in China
• Entered Chinese market in 1986• First Chinese production facility announced July 2005• 2.1 GW installed across 13 provinces• 1.6 GW annual production capacity (JB estimate)
– 1 000 MW of 2 MW platform1,000 MW of 2 MW platform – 600 MW of 850 kW platform (fully up and running in 2011)
Vestas and total market volume (MW) in China2000R 2001R 2002R 2003R 2004R 2005R 2006R 2007R 2008R 2009R2000R 2001R 2002R 2003R 2004R 2005R 2006R 2007R 2008R 2009R
Vestas delivered MW in China 4 - 10 27 75 77 379 458 596 584
Growth y/y (%) n/a n/a n/a 170% 178% 3% 392% 21% 30% -2%
Total Chinese market 84 54 67 98 198 498 1 334 3 287 6 246 13 750Total Chinese market 84 54 67 98 198 498 1,334 3,287 6,246 13,750
Growth y/y (%) n/a -36% 24% 46% 102% 152% 168% 146% 90% 120%
Vestas market share China 4.8% 0.0% 14.9% 27.6% 37.9% 15.5% 28.4% 13.9% 9.5% 4.2%
25Source: Jyske Bank and BTM Consult
Vestas in China
• From 38% market share to 4% in 5 years
Market share development for Vestas in China 2003-2009
80%
90%
100%
38%40%
50%
60%
70%
25%
14%
28%
13%9%
4%%
10%
20%
30%
0%
2003 2004 2005 2006 2007 2008 2009
Vestas Chinese manufacturers
26Source: Jyske Bank, Vestas and BTM Consult
Vestas has invested EUR 400mVestas has invested EUR 400m in China from 2005 to 2010
First round of Vestas' investments in China (2005-2006)
Announced Location Type Official capacity Investment Operations start Comment
July 2005 Tianjin Blade factory 600 (2MW) EUR 25m Q1 2006 240 employees before
expansion
January 2006 Tianjin Nacelle and hub 350 nacelles and
h b (2MW)
EUR 19m Q1 2007 225 employees
hubs (2MW)
April 2006 Tianjin Expansion of blade factory 600 (2MW) EUR 13m Mid 2007 Expansion from 600 to 1,200
blades and from 240 to 400
employees
Source: Jyske Bank and Vestas
June 2006 Tianjin Generator factory 350 generators
(2MW)
EUR 8.5m Q2 2007 75 employed from the
beginning
27
Vestas took big investmentVestas took big investment decisions in 2008
Second round of Vestas' investments in China (2008-2010)
Announced Location Type Official capacity Investment Operations start Comment
May 2008 Hohhot Factory USD 90m Mid 2010 Manufacturing V52-850 kW
and V60-850 kW turbines for
the Chinese market
May 2008 Xuzhou Foundry Max. 40,000 tons
of castings
n/a November
2009
Vestas is the only wind
turbine manufacturer in China
with an in-house foundry (180 y
employees)
June 2008 Tianjin Addition of production of
control systems and
machined parts
n/a CNY 1.8bn May 2009 Production of control panels,
high power racks and cable
production for the V52 and p p
V80 wind turbines. A 15,000
sqm. plant with approx. 250
local employees.
August 2008 Tianjin Expansion of generator n/a n/a Mid 2009g j p g
and machining factories
April 2009 Tianjin Expansion of blade factory n/a USD 90m n/a
October 2010 Beijing R&D center n/a USD 50m October 100 employees in 2010 and
28Source: Jyske Bank and Vestas
October 2010 Beijing R&D center n/a USD 50m
over 5 years
October
2010
100 employees in 2010 and
over 200 in 2012
Vestas’ “kW-strategy” is risky
• 53% 850 kW turbines sold since 2005
47% 1 8 2 0 MW t bi ld i 2005• 47% 1.8 or 2.0 MW turbines sold since 2005
• Vestas has launched its custom made V60-850 kW turbine• Vestas has launched its custom made V60 850 kW turbine for the Chinese market
• Surprisingly low order intake of the V60-850 kW turbine…
• but V52 850 kW has continued its success• …but V52-850 kW has continued its success
• Vestas’ ”kW-strategy” can prove risky in the medium to long
29
gy p y gterm, as average turbine size is trending upwards
Most peers focus on multi-MWMost peers focus on multi MW turbines
• Domestic suppliers focus on the multi-MW segment• Turbine sizes of 6 to 10 MW are now under development
D l b ildi i ith lti MW t
Installed capacity by end-2009
Company 0.75MW 0.85MW 1.25MW 1.5MW 2MW 2.5MW 3MW 3.6MW 5MW Total
• Developers are building experience with multi-MW segment
p y
Sinovel 3,426 R&D 69 R&D 3,495
Goldwind 813 1,904 3 3 R&D 2,722
Dongfang Electric 2,036 R&D R&D 2,036
United Power 768 768United Power 768 768
Mingyang 749 R&D R&D 749
XEMC 454 Prototype 454
Shanghai Electric 206 68 R&D 274
Vestas 387 222 R&D* 609Vestas 387 222 R&D 609
Suzlon 125 168 R&D* 293
REpower 198 R&D* R&D* 198
GE 323 R&D* R&D* 323
30
Source: Jyske Bank and CWEA
Trend towards larger turbines
• Average turbine size up from 850 kW in 2005 to 1.36 MW in 2009
Average wind turbine size of new installed Distribution of turbine sizes of new
5% 6%90%
100%
1 500
Average wind turbine size of new installed capacity in China (2005-2009)
Distribution of turbine sizes of new installed capacity in China in 2007 and 2009
7%
40%
67%60%
70%
80%
90%
1,200
1,300
1,400
1,500
size
(kW
)
24%
9%
7%
3%20%
30%
40%
50%
800
900
1,000
1,100
erag
e tu
rbin
e
4%
25% 12%
0%
10%
2007 2009600
700
800
2005 2006 2007 2008 2009
Ave
31
other 750 kW 850 kW 1250 kW 1500 kW 2000 kW
Source: Jyske Bank, CWEA and CWPC
New price system for wind energy
• New wind energy price system introduced in November 2009• This will shift attention more towards quality than initial price
F d i P i f Wi d P P j A di P iFeed-in Price of Wind Power Projects According to Province
Wind Ressource
Region
Benchmark Feed-in Price (Yuan/kWh)
Specific Jurisdictions in Region
Class I wind Inner Mongolia (excluding) Chifeng, Tongliao, Class I wind ressource
region0.51
g ( g) g, g ,
Xing'an Meng, Hulunbeir; Xinjiang's Urumqi, Yili,
Changji, Klamayi, Shihezi.
Class II wind ressource 0 54
Heibei's Zhangjkou and Chengde; Inner
Mongolia's Chifeng, Tongliao, Xing'an Meng, ressource
region0.54
Hulunbeir; Gansu's Zhangye, Jiayuguan, and
Jiuquan.
Class III
Jinlin's Baicheng and Songyuan; Heilongjiang
privince's Jixi, Shuangyashan, Qitaihe, Shuihua, Class III
wind ressource
region
0.58
Yichun, and Daxing'anling area; Gansu province
(excluding Zhangye, Jiayuguan, and Jiuquan);
Xinjiang privince (excluding Urumqi, Yili,
Changji, Klamayi), and Shihezi; Ningxia Hui
Autonomous Region
32
Source: Jyske Bank and CWPC
g
Class IV wind
0.61Those areas excluded in Class I, II, and III
regions.
Local suppliers have capturedLocal suppliers have captured the Chinese market since 2007
• Non-Chinese wind turbine manufacturers had a combined market share of 12.3% in 2009
90%100%
Market share of Chinese vs. non-Chinese wind turbine manufacturers in China
73%79%
72%
61%
49%50%60%70%80%
49%
27%
12%10%20%30%40%50%
12%
0%10%
2003 2004 2005 2006 2007 2008 2009
Chinese Non-Chinese33
Source: Jyske Bank and BTM Consult
Non-Chinese wind turbineNon Chinese wind turbine manufacturers peaked in 2004Market share development of non-Chinese wind turbine manufacturers in ChinaMarket share development of non Chinese wind turbine manufacturers in China
40%
45%
25%
30%
35%
10%
15%
20%
0%
5%
10%
2003 2004 2005 2006 2007 2008 2009
Vestas Gamesa GE Wind
34Source: Jyske Bank and BTM Consult
Acciona Nordex Suzlon
Market shares of accumulatedMarket shares of accumulated installed capacity 2009
• Vestas’ accumulated market share has been reduced from a level of 20% in 2004-2007 to 9% in 2009
Other Non-
Market share of accumulated installed wind energy capacity in China in 2009 (MW)
Sinovel21%
Other Chinese
Chinese10%
Chinese19%
Goldwind20%
Vestas
Gamesa7%
Dongfang14%
Vestas9%
35Source: Jyske Bank and calculations based on BTM Consult
Market shares of new installedMarket shares of new installed capacity in 2009
• Top-3 accounted for 63% of the market in 2009• Vestas and Gamesa are largest non-Chinese suppliers
Other Non-Chinese
Market share of new installed wind energy capacity in China in 2009 (MW)
Sinovel25%Gamesa
3%
Other Chinese
13%
Chinese5%
Mingyang4%
Hara XEMC3%
Goldwind20%
Dongfang
United Power
Vestas4%
4%
Dongfang18%7%
36Source: Jyske Bank and BTM Consult
Overview of Chinese competitors
Chinese Turbine ManufacturersTier 1 Tier 2 Tier 3
Goldwind XEMC A very large number of y g
Sinovel Mingyang small manufacturers
Dongfang Shanghai Electric
United Power
Source: Jyske Bank
United Power
• Tier 1: 800 MW+ annual output• Tier 2: 100 800 MW annual output• Tier 2: 100-800 MW annual output• Tier 3: >100 MW annual output
37
Sinovel: No. 1 in 2009
Sinovel90%
Sinovel market share development
Global Market Share 9.2%
Chinese Market Share 25.0%
Installed Capacity 2009 3,510 MW 60%
70%
80%
90%
Products:
SL1500 series 1.5 MW
SL3000 series 3.0 MW19%
22%
25%
20%
30%
40%
50%
Source: Jyske Bank BTM Consult and Sinovel
Just announced 5.0 MW
Under development 6.0 MW
19%
0%
10%
2003 2004 2005 2006 2007 2008 2009
Source: Jyske Bank, BTM Consult and Sinovel Sinovel Non-Chinese manufacturers
38
Goldwind: No. 2 in 2009Goldwind market share development
GoldwindGlobal Market Share 7.2%
Chinese Market Share 19.5%60%
70%
80%
90%
Goldwind market share development
Products:
600 kW
1.5 MW PMDD 1.5 MW
2 5 MW PMDD 2 5 MW
24%
20%
25%31%
23%
18%
20%
10%
20%
30%
40%
50%
2.5 MW PMDD 2.5 MW
GW300 3.0 MW
Under development 5.0 MW
0%
10%
2003 2004 2005 2006 2007 2008 2009
Goldwind Non-Chinese manufacturers
Goldwind Key Figures in RMBm2007 2008 2009 H1 2010
MW installed 755 1 373 2 036 1 326MW installed 755 1,373 2,036 1,326
Revenue 3,089 6,417 10,667 6,265
Growth y/y 108% 66%
Profit before tax 622 1,146 1,991 994
39Source: Jyske Bank, BTM Consult and Goldwind
Profit before tax 622 1,146 1,991 994
Growth y/y 84% 74%
Dongfang: No. 3 in 2009Dongfang Dongfang market share developmentg gGlobal Market Share 6.5%
Chinese Market Share 17.7%
Manufacturing Capacity 2009 1,804 MW
Dongfang market share development
60%
70%
80%
90%
Products:
1.0 MW
1.5 MW6%
16% 18%
10%
20%
30%
40%
50%
2.0 MW
2.5 MW
Under development 5.0 MW
6%
0%
10%
2003 2004 2005 2006 2007 2008 2009
Dongfang Non-Chinese manufacturers
Dongfang Key Figures in RMBm2007 2008 2009 H1 2010
Revenue, net 24,099 27,717 32,754 16,613Revenue, net 24,099 27,717 32,754 16,613
Growth y/y 15% 18%
EBIT 2,804 637 1,980 1,218
Wind Power Business
40
Revenues 552 2,617 6,279
Growth y/y 374% 140%
Source: Jyske Bank, BTM Consult and Dongfang
Chinese Tier 2 competitors (I)
• China Guodian United Power– A unit of state-owned China Guodian Corporation, established 2007– Main product: 1 5 MW turbine developed with German based AerodynMain product: 1.5 MW turbine developed with German based Aerodyn– Sees opportunities in the US
• Mingyang– Privately owned, established 2006
h d f b 200 d l d h d– Launched first 1.5 MW turbine in 2007, developed with Aerodyn– Product range: 1.5 MW-6.0 MW (under development)– Set up operations in the US in May 2010
41
Chinese Tier 2 competitors (II)
• Hara XEMC– One of the two leading suppliers of direct drive technology– Launched a 2 0 MW turbine with direct drive with a license fromLaunched a 2.0 MW turbine with direct drive with a license from
Japanese Harakosan– Developing a 5.0 MW offshore turbine with direct drive– Aqcuired Dutch-based Darwind Estate in August 2009Aqcuired Dutch based Darwind Estate in August 2009
• Shanghai ElectricListed on the Hong Kong stock exchange– Listed on the Hong-Kong stock exchange
– First wind turbine launched in 2007– Product range: 1.25, 1.5 MW as well as 3.6 MW and 5.0 MW (under
development)development)
42
Gamesa: No. 8 in China in 2009
Gamesa Key Figures in EURm2006 2007 2008 2009 H1 2010
MW i Chi 246 518 499 47280%
90%
100%
Gamesa market share development
MW in China 246 518 499 472
Sales 2,401 3,070 3,834 3,113 963
Growth y/y 28% 25% -19%
Mwe 2,250 3,289 3,684 3,145 1,00136% 33%
30%
40%
50%
60%
70%
Growth y/y 46% 12% -15%
EBITDA 441 442 530 430 138
Growth y/y 0% 20% -19%
13% 16%15%
8% 3%0%
10%
20%
2003 2004 2005 2006 2007 2008 2009
Gamesa Chinese manufacturersSource: Jyske Bank, BTM Consult and Gamesa
43
Suzlon
Suzlon market share developmentSuzlon Key Figures in INR Crore
2006/07 2007/08 2008/09 2009/10
MW in China 100 134 249 182 80%
90%
100%
MW in China 100 134 249 182
Revenue 8,082 13,947 26,531 20,849
Growth y/y 73% 90% -21%
Revenue China 1,266 1,475 40%
50%
60%
70%
80%
MW 1,456 2,311 2,790 1,460
Growth y/y 59% 21% -48%
EBITDA 1,393 2,051 2,816 943 0%6%
3%0%
10%
20%
30%
2003 2004 2005 2006 2007 2008 2009Source: Jyske Bank, BTM Consult and Suzlon
2003 2004 2005 2006 2007 2008 2009
Suzlon Chinese manufacturers
44
GE Energy
GE market share development
90%
100%GE Energy Key Figures in USDm
2006 2007 2008 2009 H1 2010
Revenue 19,406 22,456 29,309 31,028 18,195
Source: Jyske Bank BTM Consult and GE 40%
50%
60%
70%
80%Growth y/y 16% 31% 6%
EBIT* 2,918 3,835 4,880 6,149 3,391
EBIT-margin 15.0% 17.1% 16.7% 19.8% 18.6%
Source: Jyske Bank, BTM Consult and GE
21% 10% 7%3%
0%
10%
20%
30%
2003 2004 2005 2006 2007 2008 2009
GE Chinese manufacturers
45
Nordex
Nordex Key Figures in EURm2006 2007 2008 2009 H1 2010
T t l R 552 807 1189 1144 379Total Revenue 552 807 1189 1144 379
Growth y/y 46% 47% -4%
EBIT 17 40 63 40 7
EBIT-margin 3.0% 5.0% 5.3% 3.5% 1.9%EBIT margin 3.0% 5.0% 5.3% 3.5% 1.9%
MW sales in China 45 155 111
Turbine production MW 584 800 1128 983 387
Of which in China 65 176 86 59
Source: Jyske Bank, BTM Consult and Nordex
• From a market share of 3% in 2006 to less than 1% in 2009
46
Siemens Wind Power
Key figures Siemens in EURm (Renewable Energy division)2006/07 2007/08 2008/09 1Q2010 2Q2010 3Q2010
Revenue 1 365 2 092 2 935 480 862 953Revenue 1,365 2,092 2,935 480 862 953
Growth y/y 53% 40% -33% 8% 25%
Order intake 2,452 4,434 4,823 1,576 628 2,271
Profit before tax 134 242 382 29 107 129
Source: Jyske Bank, BTM Consult and Siemens
PBT-margin 9.8% 11.6% 13.0% 6.0% 12.4% 13.5%
• No exposure to China until 2010• Opened its first Chinese production facility in November 2010• Opened its first Chinese production facility in November 2010
(components for 2.3 MW and 3.6 MW turbines)• 600 MW annual capacity for China and export markets
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JYSKE BANK ESTIMATESJYSKE BANK ESTIMATES(12 slides)
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Total market volume estimates
Global wind turbine volume (MW) - reported figures and JB estimates
2006R 2007R 2008R 2009R 2010E 2011E 2012E 2013E 2014EEurope 7,681 8,285 9,179 10,738 10,500 9,500 11,500 14,500 18,000Europe 7,681 8,285 9,179 10,738 10,500 9,500 11,500 14,500 18,000Growth y/y 8% 11% 17% -2% -10% 21% 26% 24%
Americas 3,515 5,815 9,527 11,433 7,650 9,300 10,800 13,200 15,500 Growth y/y 65% 64% 20% -33% 22% 16% 22% 17%
S th & E t A i 3 712 5 010 8 201 14 991 16 500 16 800 17 000 17 500 18 000South & East Asia 3,712 5,010 8,201 14,991 16,500 16,800 17,000 17,500 18,000
- of which China 1,334 3,287 6,246 13,750 14,000 14,000 13,500 13,500 13,500
- Growth y/y 146% 90% 120% 2% 0% -4% 0% 0%
Growth y/y 35% 64% 83% 10% 2% 1% 3% 3%
Other areas 109 683 1,284 942 1,900 2,500 3,000 3,600 4,500 Growth y/y 527% 88% -27% 102% 32% 20% 20% 25%
Total 15,017 19,791 28,190 38,104 36,550 38,100 42,300 48,800 56,000 Growth y/y 32% 42% 35% -4% 4% 11% 15% 15%
Source: Jyske Bank and BTM Consult
Growth y/y 32% 42% 35% 4% 4% 11% 15% 15%
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Total market volume estimateTotal market volume estimate changesJB estimates for global wind turbine volume (MW) including estimate changes
2010E 2011E 2012E 2013E 2014EEurope 10,500 9,500 11,500 14,500 18,000 Change in estimates (MW) 0 0 -1000 -1500 -2000
Americas 7,650 9,300 10,800 13,200 15,500 Change in estimates (MW) -900 0 0 0 0
South & East Asia 16,500 16,800 17,000 17,500 18,000 Change in estimates (MW) 1500 -200 -1000 -2500 -4000
- of which China 14,000 14,000 13,500 13,500 13,500
Change in estimates (MW) 1000 -200 -1000 -2500 -4000
Other areas 1 900 2 500 3 000 3 600 4 500Other areas 1,900 2,500 3,000 3,600 4,500 Change in estimates (MW) 0 0 0 0 0
Total 36,550 38,100 42,300 48,800 56,000 Change in estimates (MW) 600 -200 -2000 -4000 -6000
Source: Jyske Bank and BTM Consult
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We are not as optimistic asWe are not as optimistic as BTM Consult
Volume estimates China - BTM vs. JB
2007R 2008R 2009R 2010E 2011E 2012E 2013E 2014EMW deliveries (BTM) 3,287 6,246 13,750 14,000 15,000 15,500 16,500 18,000
Growth y/y (%) 146% 90% 120% 2% 7% 3% 6% 9%
MW deliveries (JB estimates) 14,000 14,000 13,500 13,500 13,500
Growth y/y (%) 2% 0% -4% 0% 0%
Difference (%) JB vs. BTM 0% -7% -13% -18% -25%
Source: Jyske Bank and BTM Consult
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Historical order development forHistorical order development for Vestas in ChinaDevelopment of Vestas' order intake in China 2004-2010
YearAnnounced
orders (MW)Announced
orders (no.)Average order
size (MW)
2004 100 1 100
2005 0 0 n/a
2006 383 2 192
2007 387 3 129
2008 766 9 85
Source: Jyske Bank and Vestas
2009 248 5 50
2010 972 16 61
• Order intake quadroupled in 2010• Average order size has declined since 2007• Average order size has declined since 2007
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li f d d d d i hi
Uannounced orders decliningSplit of announced and unannounced orders in China
2005R 2006R 2007R 2008R 2009R 2010E
Total Chinese market (BTM and JB estimates) 498 1,334 3,287 6,246 13,750 14,000
Growth (y/y) 152% 168% 146% 90% 120% 2%
Vestas volume in China (MW) 77 379 458 596 584 975
Growth (y/y) 3% 392% 21% 30% -2% 67%
Vestas order intake (MW) 0 383 387 766 248 972 Growth (y/y) n/a 1% 98% -68% 292%
Vestas market share (BTM and JB estimates) 15.5% 28.4% 13.9% 9.5% 4.2% 7.0%
Vestas' China exposure (Chinese volume/total volume) 2% 9% 10% 11% 12% 19%
D li d d V t d * 0 363 320 475 577 975Delivered announced Vestas orders* 0 363 320 475 577 975 Growth (y/y) n/a -12% 48% 21% 69%
Delivered unannounced Vestas orders (residual)* 77 16 138 121 7 0Growth (y/y) -79% 762% -12% -94% -100%
Share of announced orders 0% 96% 70% 80% 99% 100%
Share of unannounced orders 100% 4% 30% 20% 1% 0%
Source: Vestas, BTM Consult and Jyske BankSource: Jyske Bank and Vestas*) Based on Jyske Bank estimates of the timing of deliveries of announces orders from China.
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Source: Jyske Bank and Vestas
Volume recognition 2004-10 (I)Announced orders from China 2004-2011
Expected revenue recognitionDate Project Turbines MW total 2006 2007 2008 2009 Q110 Q210 Q310 Q410 2010 201131-12-2004 n/a V80-2,0 MW 100 100
30-03-2006 n/a V52-850 kW 238 238
31-10-2006 n/a V80-2,0 MW /
V52-850 kW
145 25 120
Expected revenue recognition
02-02-2007 n/a V52-850 kW 187 100 87
10-04-2007 n/a V80-2,0 MW 100 100
03-08-2007 n/a V80-2,0 MW 100 100
04-01-2008 Inner Mongolia V52-850 kW 197 138 59
27-06-2008 Danianzi V80-2,0 50 30 20
27-06-2008 Bolike-II V80-2,0 50 30 20
24-07-2008 Chuandao V52-850 kW 85 50 35
04-08-2008 Shicheng V80-2,0 MW 40 40
21-08-2008 Sigeng V90-2,0 MW 48 48
16-10-2008 Suniteyou Wind Farm III V52-850 kW 98 98
29-12-2008 n/a V52-850 kW 98 98
31-12-2008 n/a V52-850 kW 100 100
24-04-2009 Zhaqi Phase I Wind Farm V52-850 kW 50 50
06-07-2009 Pingtan Aoqian V80-2,0 MW 34 34
10-07-2009 N/A V90-1,80 MW / 75 15 10 15 35 60
V90-2,0 MW /
V80-2,0 MW
17-12-2009 Keyqouqianqi V60-850 kW 49 20 20 9 49
28-12-2009 Zhaolitouzi (Liaoning Province) V90-2,0 MW 40 10 20 10 40
25-02-2010 Huitong Energy’s Zuozi Bayinxile
Wi d F
V80-2,0 MW 48 30 18 48
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Source: Jyske Bank and Vestas
Wind Farm
30-03-2010 n/a n/a 50 25 25 50
06-04-2010 n/a n/a 50 25 25 50
15-04-2010 n/a V52-850 kW 49 20 29 49
Volume recognition 2004-10 (II)Announced orders from China 2004-2011
Date Project Turbines MW total 2006 2007 2008 2009 Q110 Q210 Q310 Q410 2010 201120-04-2010 Ningxia Hui Autonomous Region
(NHAR)
V90 49 20 29 49
22-04-2010 n/a n/a 49 20 29 49
Expected revenue recognition
27-04-2010 n/a V52-850 kW /
V90-2.0 MW
198 30 30 90 150 48
17-06-2010 Dashuiboluo windfarm, Linxi,
Inner Mongolia Autonomous
Region
V80-2,0 MW 50 20 30 50
g
21-06-2010 Alatan wind farm, Tongliao,
Inner Mongolia Autonomous
Region
V80-2,0 MW 50 20 30 50
24-06-2010 Putian County, Fujian Province V80-2,0 MW 48 16 32 48
19-07-2010 Huianbao, Ningxia Hui V90-1,80 MW 49 30 19 4919 07 2010 Huianbao, Ningxia Hui
Autonomous Region
V90 1,80 MW 49 30 19 49
02-08-2010 n/a V80-2,0 MW 36 10 26 36
13-08-2010 n/a V90-2,0 MW 74 74 74
18-08-2010 Guangdong Province V52-850 kW 74 74 74
15-12-2010 Huianbao Ningxia Hui V90-1 80 MW 49 4915-12-2010 Huianbao, Ningxia Hui
Autonomous Region
V90-1,80 MW 49 49
29-12-2010 Jiaochekou wind farm, Hebei
province
V52-850 kW /
V60-850 kW
49 49
07-01-2011 Daqinghe Yanchang wind farm,
Laoting County
V90-2,0 MW 50 50
55
Source: Jyske Bank and Vestas
Laoting County
Total 2,907 363 320 475 577 0 70 321 584 975 196
Zero volume growth beyond 2010
Vestas and total market volume (MW) in China2005R 2006R 2007R 2008R 2009R 2010E 2011E 2012E 2013E 2014E
Vestas delivered MW in China 77 379 458 596 584 975 975 975 975 975
G h / (%) 3% 392% 21% 30% 2% 67% 0% 0% 0% 0%Growth y/y (%) 3% 392% 21% 30% -2% 67% 0% 0% 0% 0%
Total Chinese market 498 1,334 3,287 6,246 13,750 14,000 14,000 13,500 13,500 13,500
Growth y/y (%) 152% 168% 146% 90% 120% 2% 0% -4% 0% 0%
Source: Jyske Bank and Vestas
Vestas market share China 15.5% 28.4% 13.9% 9.5% 4.2% 7.0% 7.0% 7.2% 7.2% 7.2%
• Stable market share around 7%• Vestas will stay in the game because of quality products• Vestas will stay in the game because of quality products• New legislation is the main risk
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Vestas volume estimatesVestas MW deliveries and market share by region
2006R 2007R 2008R 2009R 2010E 2011E 2012E 2013E 2014EEurope 2,109 2,087 2,707 2,772 2,438 2,280 2,760 3,480 4,320 Market share 27.5% 25.2% 29.5% 25.8% 23.2% 24.0% 24.0% 24.0% 24.0%
Americas 1,070 1,416 1,719 1,304 1,220 2,040 2,410 2,890 3,375 Market share 30.4% 24.4% 18.0% 11.4% 15.9% 21.9% 22.3% 21.9% 21.8%
South & East Asia 1,060 999 1,154 683 1,505 1,405 1,405 1,485 1,580 Market share 28.6% 19.9% 14.1% 4.6% 9.1% 7.5% 8.0% 9.0% 9.0%
- of which China 379 458 596 584 975 975 975 975 975
- market share China 28.4% 13.9% 9.5% 4.2% 7.0% 7.0% 7.2% 7.2% 7.2%
- share of total volume 9% 10% 11% 12% 19% 16% 14% 12% 10%
Other areas 0 0 0 5 0 350 300 350 400 Market share 0.0% 0.0% 0.0% 0.5% 0.0% 14.0% 10.0% 9.7% 8.9%
Total 4,239 4,502 5,580 4,764 5,163 6,075 6,875 8,205 9,675 Market share 28 2% 22 7% 19 8% 12 5% 14 1% 15 9% 16 3% 16 8% 17 3%
Source: Jyske Bank and BTM Consult
Market share 28.2% 22.7% 19.8% 12.5% 14.1% 15.9% 16.3% 16.8% 17.3%
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Vestas volume estimate changesJB estimates for MW delivered by Vestas including estimate changes
2010E 2011E 2012E 2013E 2014EEurope 2,438 2,280 2,760 3,480 4,320 Change in estimates (MW) 0 46 -240 -360 -480
Americas 1,220 2,040 2,410 2,890 3,375 Change in estimates (MW) 0 0 0 0 0
South & East Asia 1,505 1,405 1,405 1,485 1,580 Change in estimates (MW) 0 20 -35 -315 -400
- of which China 975 975 975 975 975
Change in estimates (MW) 0 20 -35 -315 -400
Other areas 350 300 350 400Other areas - 350 300 350 400 Change in estimates (MW) 0 0 0 0 0
Total 5,163 6,075 6,875 8,205 9,675 Change in estimates (MW) 0 66 -275 -675 -880
Source: Jyske Bank and BTM Consult
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Record order intake in 2010
Vestas order intake 2007-2010
8673
7000
8000
9000
10000
5613
3400
6019
3072 30314000
5000
6000
7000
1708963
510
2432
648 6461277
458 54210501022
3072
1258
303122782106
0
1000
2000
3000
0
Q1 07
Q2 07
Q3 07
Q4 07
FY 07
Q1 08
Q2 08
Q3 08
Q4 08
FY 08
Q1 09
Q2 09
Q3 09
Q4 09
FY 09
Q1 10
Q2 10
Q3 10
Q4 10
FY 10
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Source: Jyske Bank and BTM Consult
60-70% order coverage in 2011
• We estimate that about 3.8 GW of Vestas’ announced orders will be recognised as revenue in 2011, assuming that half of the 1 5 GW EDPR framework agreeement will benefit 2011the 1.5 GW EDPR framework agreeement will benefit 2011
• Our estimate equals 63% of Vestas’ guidance of 6 GW
• We find it realistic that the residual of 2.2 GW will be covered by orders in 2011 (Vestas is guiding 7 8 GW for 2011)by orders in 2011 (Vestas is guiding 7-8 GW for 2011)
• Orders needed for Europe and Asia to reach our estimatesp
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VALUATIONVALUATION(5 slides)( )
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Estimate changes
(DKKm) 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012EChange in %Previous estimate New estimate
(DKKm) 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E
Sales 6,805 6,806 7,765 6,806 6,826 7,731 0.0% 0.3% -0.4%
EBIT 323 510 738 324 513 734 0.0% 0.5% -0.4%
Profit before tax 283 464 692 284 467 688 0.0% 0.5% -0.5%Profit before tax 283 464 692 284 467 688 0.0% 0.5% 0.5%
Net profit 204 334 498 204 336 496 0.0% 0.5% -0.5%
Sales growth 34.0% 0.0% 14.1% 34.0% 0.3% 13.2% 0.0 p.p. 0.3 p.p. -0.9 p.p.
EBIT margin 4.8% 7.5% 9.5% 4.8% 7.5% 9.5% 0.0 p.p. 0.0 p.p. 0.0 p.p.
Source: Jyske Bank
EBIT margin 4.8% 7.5% 9.5% 4.8% 7.5% 9.5% 0.0 p.p. 0.0 p.p. 0.0 p.p.
EPS 1.00 1.64 2.44 1.00 1.65 2.43 0.0% 0.5% -0.5%
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Vestas’ guidance2011 guidance New PreviousgOrder intake 7-8 GW 7-8 GW
Volume (produced and shipped) 6 GW 6 GW
Revenue total EUR 7 bn EUR 6.8bn
Revenue service EUR 700mRevenue service EUR 700m
EBIT-margin total* ~7% ~7%
EBIT-margin service ~15%
Net financial items EUR -60m
Tax rate 28%
Investments in fixed assets EUR 550m EUR 400m
Investments in intangible assets EUR 300m EUR 250m
Free cash flow Positive Positive
Source: Jyske Bank and Vestas
Free cash flow Positive Positive
Guarantee provisions (% of revenue) Below 3% Below 3%
• Upside to 2011 EBIT-margin guidance (JB 7.7%)
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EBIT margins will trend upwards
W t i t f th EBIT i d tWe expect an improvement of the EBIT margin due to:
1) Higher capacity utilisation, partly offset by lower selling1) Higher capacity utilisation, partly offset by lower selling prices
2) An internal improvement of efficiency
3) Cost reductions in 1H 2011 resulting from 3 000 layoffs3) Cost reductions in 1H 2011 resulting from 3,000 layoffs
4) Successful attempts to even out seasonal fluctuations over ) pthe year in order to improve the utilisation of the production capacity
64
Fair DCF value of DKK 359Avg.
2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E budget
Hist. avg.
5 years1g
Sales growth 0.5% 11.1% 19.7% 17.9% 10.2% 10.2% 10.2% 9.3% 7.7% 6.2% 10.3% 17.0%
EBITA-margin 7.7% 9.5% 9.7% 10.4% 10.1% 9.7% 9.4% 9.1% 9.1% 8.9% 9.3% 6.0%
Tax rate 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 48.6%
Working capital as a % of sales 8.6% 8.1% 8.3% 9.3% 9.0% 8.7% 8.5% 8.3% 8.1% 8.0% 8.5% 2.5%
CAPEX as a % of sales 12.3% 10.1% 9.5% 8.2% 7.3% 7.1% 7.0% 7.0% 6.2% 5.8% 8.1% 10.1%
y
Sales 6,958 7,728 9,247 10,901 12,010 13,234 14,582 15,935 17,169 18,233 12,600 5,182
EBITA 536 734 902 1,128 1,207 1,290 1,363 1,442 1,554 1,626 1,178 316
FX and financial instruments 0 0 0 0 0 0 0 0 0 0 0 0
Tax on EBITA -148 -204 -251 -315 -337 -360 -380 -402 -434 -455 -329 -122
NOPLAT 388 530 651 814 870 930 983 1,040 1,120 1,171 850 194Depreciation 269 290 320 310 331 353 375 400 425 448 352 134
Amort. ex goodwill 110 140 165 190 210 232 258 285 302 317 221 56
CF from operations 767 959 1,136 1,313 1,411 1,515 1,616 1,725 1,848 1,936 1,423 385Change in working capital -255 28 148 240 68 75 83 83 76 66 61 62
CAPEX2 856 782 879 893 875 946 1,022 1,114 1,069 1,064 950 549
Frit cash flow 166 149 109 180 468 494 510 528 702 805 411 -227Frit cash flow 166 149 109 180 468 494 510 528 702 805 411 -227
Current risk premium4 Historical risk premium5
NPV of free cash flow 2,590 2,646 3.8%
NPV of terminal value 7,899 8,764 4.4%
Value of operations ex options 10,489 11,410 Historical risk premium 4.0%
Current risk premium
Risk-free interest rate
Existing employee options 0 0 1.35
Value of operations 10,489 11,410 -0.3%
Associated companies 4 4 7.8%
Minority items 0 0 7.4%
Other values 0 0 20 years
NV of interest-bearing net debt -682 -682
CAP period3
Liquidity premium
WACC (current risk premium)
Beta
WACC (historical risk premium)
65
NV of interest bearing net debt 682 682
Shareholder value 9,811 10,732Number of shares (million) 203.70 203.70
Fair value per share (EUR) 48 53Fair value per share (DKK) 359 393
Relative valuationMarket cap PE PE EV/EBITDA EV/EBITDA EV/EBIT EV/EBITMarket cap PE PE EV/EBITDA EV/EBITDA EV/EBIT EV/EBIT(USDm) (2011) (2012) (2011) (2012) (2011) (2012)
VESTAS WINDSYSTEMS 6,610 14.2 11.3 6.3 5.3 10.6 8.7
GAMESA CORP N.TEGC. 1,928 22.7 15.8 5.5 4.5 13.3 10.0
NORDEX 582 18.4 18.4 5.9 5.5 9.0 8.8
REP OWER SYSTEMS 1,509 21.1 17.6 9.0 7.9 12.7 10.6
SUZLON ENERGY 1,774 18.4 18.6 8.6 40.2 11.7
A l V t 20 7 17 6 9 8 6 6 18 8 10 3Average excl. Vestas 20.7 17.6 9.8 6.6 18.8 10.3
Average weigthed by market cap 14.9 17.3 10.5 6.8 20.9 10.6
Vestas premium vs. average -31.5% -35.6% -35.0% -20.5% -43.6% -15.6%
Source: Jyske Bank and Datastream
• 20 35% discount to peers• 20-35% discount to peers • We expect Vestas to close the gap
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THANK YOU
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