Well on-track to deliver on our 2014 estimates

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1 VESTAS - BUY Well on-track to deliver on our 2014 estimates This is a noncomplex product Vestas delivered very impressive Q4 13 results, confirming to us that it is well on track to return to normalized earnings. We are surprised by the announcement of a 10% capital increase that is likely to put some pressure on the share. However, with the strong numbers reported we would use this as a buying opportunity. Vestas delivered very strong Q4 13 results with EBIT before special items at EUR 240m, beating consensus expectations by 31%. As expected, Vestas delivered a clear improvement in profitability with an EBIT-margin of 9.7% p.p. higher than consensus estimates. This is despite the negative effect from a EUR 97m bonus provision taken in Q4 13. Adjusted for the bonus provision Vestas delivered a very impressive EBIT-margin of 14.3% in the quarter with the EBIT-margin for the full year at 5.1%. We are positively surprised by the strong margin in the quarter, confirming to us that Vestas is on track to reduce production cost and improve profitability. With the margin delivered in the quarter we are confident that Vestas is able to improve its EBIT-margin in 2014 with an estimated EBIT-margin of 6%. Accounting figures and key figures (EURm) 2012R 2013E 2014E 2015E Sales Operating profit Results before taxes EBIT margin -9,7% 1,5% 6,5% 6,5% ROE -45,9% -6,2% 16,6% 15,3% ROIC -23,7% -0,6% 18,4% 21,5% EPS -4,7-0,5 1,3 1,5 P/E -5,4-53,7 19,1 17,7 EV/EBIT -9,0 72,2 13,6 13,3 P/BV 3,2 3,5 2,9 2,5 Dividend Fundamental valuation Undervalued Risk High News flow Positive 12-month target price 220 Closing price 184 Shar e infor m ation High/low latest 12 m 197/33 Price trend (3/12 m) 27%/408% Relative to OMXC20 19%/382% Market value (EURm) Free float 100% Avg daily vol (EURm) 392,4 Reuters VWS.CO Bloomberg VWS DC Pr ice tr end Vestas A/S 192 OMXC20 Cap j f m a m j j a s o n d Source: Jyske Bank & Datastream Jyske Markets, Vestergade 8-16 DK-8600 Silkeborg Senior Analyst, Equity Research, Janne Vincent Kjær jvk@jyskebank.dk This investment research report is an extract of a research report to professional investors. Important investor information: Please see 1

2 Q4 '13E Surprise % (meur) Q4 '12R Q4 '13R Growth % Consensus JB-estimate Consensus JB-estimate Order intake (MW) ,2% ,7% 3,1% MW delivered ,9% ,4% -5,4% MW produced & shipped ,5% ,4% -5,1% Revenue ,0% ,5% 6,0% EBIT ,7% ,7% 7,0% EBIT ex. non recurring items ,8% ,1% 8,1% Result before tax ,2% ,1% -3,7% Net result ,3% ,8% 7,8% EBIT-margin -13,1% 9,7% -174,2% 8,6% 9,6% 1,1 p.p. 0,1 p.p. EBIT-margin ex. Non recurring items 6,2% 10,2% 4,0 p.p. 9,0% 10,0% 1,2 p.p. 0,2 p.p. Kilde: Jyske Bank, Inquiry Finance Europe AB As expected guidance was conservative with Vestas guiding for revenue of more than EUR 6bn, an EBIT margin of minimum 5% and FCF of more than EUR 300m. This is in-line with consensus estimates. We see the guidance as conservative, leaving room for a positive revision later in the year. With the strong order intake in the quarter we see good visibility of activity returning with estimated deliveries of 6 GW. Guid ance Guid ance Consensus JB estimate Order intake (MW) n/a Shipments (MW) 413 n/a Revenue total > EUR 6bn Revenue service 954 growing n/a EBIT-margin before special items 5,1% min 5% 5,7% 5,7% EBIT-margin service, before group costs 22,3% stable n/a 22,0% Free cash flow > EUR 300m n/a 263 We are likely to keep our estimates largely unchanged, but expect consensus expectations to be revised up on the report. Normally we would have expected the share to move up quite significantly on the report, but with the capital increase announced we believe the share is likely to come under some pressure and in the best case move sideways. We would be buyers on a negative share price reaction. Unexpectedly, Vestas announced a 10% capital increase in connection with the annual report. Vestas will issue up to 20,370,410 new shares at market price through a private placement using a book-building process. The book-building process is expected to close on the 5 th of February 2

3 2014 at the latest. We are surprised by the announcement as Vestas has managed to reduce net interest bearing debt to around zero with a net cash position end 2013 of EUR 68m.This leaves Vestas with cash and unused credit facilities of EUR 1.3bn going into However, we believe Vestas would like to have even greater financial flexibility as the EUR 650m revolving credit facility and the EUR 600m 2015 notes are due in With the more than EUR 300m in FCF expected in 2014 we are comfortable with the existing debt structure, but believe the timing is right in order to secure a long term funding structure on attractive terms. The EUR 650m revolving credit facility has a two year extension option, but Vestas would not allow renewed uncertainty over the company s financial flexibility to affect customers willingness to engage into business with Vestas once again. Management has therefore entered into an agreement on a new 5 year revolving credit facility of EUR 850m with a group of four banks comprising Nordea, DNB, HSBC and SEB. The facility replaces the existing EUR 650m revolving credit facility that is to expire in January 2014, but is subject to a successful capital increase. 3

4 Overview Vestas Company profile Ownership structure Vestas Wind Systems is the world s largest producer of wind turbines with a market share of approx. 25%. The company began its production of wind turbines in 1979, and was listed on the stock exchange in Today Vestas produces wind turbines in sizes from 1.8 MW to 3.0 MW. The company's vision is to turn wind into an energy source equal to oil and gas. Blackrock Capital Inc. Research 5% and Managemen t Company Øvrige 90% Sales growth and profitability 40% 30% Break-down of sales Asien/Ocean ien 11% 20% 10% 0% Nord- og Sydamerika 21% -10% -20% -30% Sales growth EBITA-margin Europa 68% Fundamental valuation Investment case Despite the strong re-rating of the share we still see upside With the recent strong order inflow we feel confident that to our long term fair value with more than 10% upside to the Vestas is back on track gaining market share with Vestas current share price. capturing more than 25% of all orders announced in the We believe Vestas will be able to restore profitability and industry. This is not reflected in valuation relative to see potential for Vestas to improve its EBIT margin above the peers. 6% range in the short to medium term. This is not reflected in We see potential for at strong pick-up in activity in 2014 consensus estimates. with expected deliveries up 30% from 2013-level. This will improve capacity utilization going into 2014 and allow Vestas to restore profitability. Vestas is on track to reduce fixed capacity cost with more than EUR 400m by the end of With lower variable production costs, higher activity and a better balance between demand and supply in the market, we expect Vestas to improve profitability significantly going into We see upside to consensus estimates and believe the market Price triggers Stronger political focus on renewable energy. Prolongation of the PTC scheme in the US. Rising natural-gas prices and initiatives to reduce dependence on oil. Improved earnings capacity. Risk factors Reduced demand due to budget problems and tighter funding conditions. The expiry of the PTC scheme in the US will affect the installed capacity. Problems relating to the quality of the wind turbines under warranty result in heavy repair costs. Intensified price competition. Declining political sympathy towards climate-friendly 4

5 Date Recommendation Buy Reduce Buy Reduce Buy Price at recommendation 58,20 61,20 62,00 115,00 129,00 184,30 Yield until next change of recommendation or today 5,15% 1,31% 85,48% 12,17% 42,87% Index at recommendation 435,09 459,27 547,80 565,56 567,63 703,98 Yield until next change of recommendation or today 5,56% 19,28% 3,24% 0,37% 24,02% Relative performance compared to index -0,38% -15,07% 79,66% 11,76% 31,40% The tabled prices are the opening price of the day of the recommendation change. Index: OMXC20 5

6 Disclaimer & Disclosure Jyske Bank is supervised by the Danish Financial Supervisory Authority. The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and may not be copied. This report is an investment research report. Conflicts of interest Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an objective manner. These procedures have been incorporated in the business procedures covering the equity research activities of Jyske Markets, a business unit of Jyske Bank. Moreover, equity analysts at Jyske Bank cannot trade in equities for which they prepare research reports. If an analyst takes over for the responsible analyst in connection with illness, business travels, etc., this analyst cannot trade in the relevant share on the day of publication of the research report and the following day. Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has not been presented to the company prior to its release. Analysts receive no payment from persons interested in individual research reports. Read more about Jyske Bank's policy on conflicts of interest at Recommendation Risk-adjusted return Strong buy >20% Jyske Buy Bank s share 10-20% recommendations current allocation Reduce 0-10% Allocation Sell of recommendations, <0% Danish shares (number) Allocation of recommendations, all shares (number) Source: Jyske Bank Financial models Share Jyske recommendation Bank employs one concepts or more of the following models: Discounted cash flow (free cash flow), Economic Value Added and the dividend Our model recommendations to determine the are fundamental relative to value the market of a company. development The fundamental and are based value on is compared an evaluation to a of relative the forecast valuation return based within on multiples the coming such as P/E and EV/EBITA. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment 12 months. The forecast return is the difference between the current price and 15 our 12-month price target (the price target includes the projected based on knowledge of the industry and company-specific circumstances. Jyske Bank s recommendations take into account the expected 10 dividend). The equity market has historically yielded a return of around 10% (the US equity market, for instance, yielded a return development of 10% during the equity the period market, ). the various sectors When we and determine company-specific the recommendation circumstances. for a share we use the 10% as an estimate of the return Risk in the equity market. 10 Investment in this share is associated with a risk. Movements in the equity market, the sector and/or news flows, etc. regarding the company Since 5 our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In addition, the potential is stated in absolute terms via our price target. 5 It should be borne in mind, however, that the may affect the price of the share. See the front page of the research report for our view of the risk associated with the share. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered all-encompassing. If the share is traded in a currency recommendation other than the investor s is the anchor. base currency, A BUY recommendation the investor accepts will an remain FX risk. a In BUY connection recommendation with an ADR until or changed, similar papers, even if the price FX risk increases exists relative have to the currency in which the underlying share trades. taken the price too close to the price target. 0 Update of research report The planned Strong update Buy of the Buy report will be Reduce prepared immediately Sell upon the release of the company s Strong Buy financial Buy statements. Reduce In addition, research The future and historical returns estimated in the research report are stated as returns before costs and tax-related circumstances Sell since reports may be prepared on special themes specifically for the company or research reports where the company is part of the special theme. returns after costs and tax-related circumstances depend on a number of factors relating to individual customer relations, custodian These research reports are published on an ad-hoc basis. charges, volume of trade as well as market-, currency- and product-specific factors. It is not certain that the share will yield the stated 6 See the front page for the initial date of publication of the report. Source: Jyske Bank expected future return/s. The stated expected future returns exclusively express our best assessment. All prices stated are the latest closing prices before the release of the report, unless otherwise stated. 0

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