May 30, 2013

Suzlon Group FY13: Performance impacted by exceptional conditions; India market turbulence

  • Liability management-focus impacts volumes, execution, adds nonroutine costs
  • Revenues of Rs 18,743 cr / ~US$ 3.33 bn

         o REpower FY13 revenues of EUR 2.22 bn; 35% CAGR FY11 – FY13

  • Consolidated EBIT of Rs (2,037) cr/ US$ (362) mn
  • Project Transformation: Suzlon Wind operating fixed costs down by 20%, headcount down by over 2,000; working capital reduced to 20% at Group-level; further optimization underway

Pune: Suzlon Group, the world’s fifth largest* wind turbine maker, on Thursday 30th May
2013, announced its results for financial year 2012-13 (FY13).

Mr Tulsi Tanti, Chairman – Suzlon Group, said: “This has been an extremely difficult
year for the Suzlon Group. We faced both significant internal challenges on the liability
management front, and externally with a highly competitive global wind sector, and
turbulent India market which shrank by almost 50 per cent.

“Breaking out of this cycle required a strategic shift on our part in order to preserve value
and ensure the sustainability of our business in the long-term. This meant that, over the
fiscal, the business was under-resourced which contributed to what is a very poor result.
However, we consider this to have been a necessary sacrifice and have made substantial and
real progress in addressing our liabilities, as well as in improving our business efficiency.
Despite these challenges, we secured new orders of nearly US$ 4.3 bn over the year,
REpower continued to outperform the sector, and we enter the new fiscal focusing 100 per
cent on execution.”

Mr Kirti Vagadia, Group Head of Finance, said: “As we have stated in the past, FY13
presented us with a textbook conflict in allocation of resources, between our business needs
and those of our liabilities. While we made significant progress, under Project
Transformation, in streamlining the organization over the year – reducing headcount at
Suzlon Wind by nearly 2,000 positions, improving business efficiency, and in liability
management – the impact of this has been a very low volume of execution, along with the
resultant non-routine costs. Delays in execution have also led to the cancellation of a small
number of orders, totaling 195 MW; however with a steady intake of new orders, our order
book position remains net positive, giving us solid order coverage over the mid-term.

“While our FY13 numbers are extremely disappointing, the business is starting to stabilize.
We embark into FY14 with additional working capital support, a leaner workforce, lower fixed
costs, and a more efficient cash cycle. While the market environment continues to remain
extremely challenging, we are positioning the business to take advantage of the market
recovery, which is independently projected for CY2014.”


Key updates:

Business performance:
? Performance at the Suzlon Wind level was significantly impacted by the internal
focus on liability management; as well as by our home market, India, shrinking by
nearly 50 per cent due to removal of key policies – Accelerated Depreciation (AD) and
Generation Based Incentives (GBI) – limited Suzlon Wind volumes to 251 MW, and
added non-routine costs. The GBI policy has been reinstated in FY2013-14 Union
budget.

REpower continued to outperform the industry achieving 35 per cent CAGR FY11 –
FY13, and posting revenues of EUR 2.22 bn for FY13 against EUR 1.67 bn for FY12.
The Company crossed 1 GW in installations in both the US and UK, and maintained
the Group’s position as the second leading offshore supplier in 2012.

? The Group’s Service (OMS) vertical continued its growth with total 
installed
capacity under contract approaching 20,000 MW, translating to a service order
backlog of US$ 3.4 bn over a five-year horizon. With best-in-class availability, the
OMS vertical contributed 9.6 per cent of Group revenues in FY13, projected to
increase by over 38 per cent year-on-year, with EBIDTA margins of over ~25 per
cent.

Exceptional items: The FY13 financial result was impacted by non-routine costs, including
foreign exchange losses, asset impairments, tax credit reversal et al, totaling approximately
Rs 1,100 cr.

Board meeting update: The Board of Directors approved an omnibus resolution for
issuance of equity or other equity linked instruments to an extent of Rs 5,000 cr, subject to
the approval of shareholders. This is an enabling resolution to facilitate the Company to raise
funds at an appropriate time, if required.

Liability management: The Company's Corporate Debt Restructuring (CDR) package was
approved and implemented, extending the maturity profile of its domestic debt with a two
year moratorium on principal and interest on term debt, conversion of interest costs into
equity, lower interest rates, and a significantly back-ended maturity profile. Additional
working capital support also became available under the CDR package, helping restart theKey updates:

Business performance:

? Performance at the Suzlon Wind level was significantly impacted by the internal
focus on liability management; as well as by our home market, India, shrinking by
nearly 50 per cent due to removal of key policies – Accelerated Depreciation (AD) and
Generation Based Incentives (GBI) – limited Suzlon Wind volumes to 251 MW, and
added non-routine costs. The GBI policy has been reinstated in FY2013-14 Union
budget.

? REpower continued to outperform the industry achieving 35 per cent CAGR FY11 –
FY13, and posting revenues of EUR 2.22 bn for FY13 against EUR 1.67 bn for FY12.
The Company crossed 1 GW in installations in both the US and UK, and maintained
the Group’s position as the second leading offshore supplier in 2012.

? The Group’s Service (OMS) vertical continued its growth with total installed
capacity under contract approaching 20,000 MW, translating to a service order
backlog of US$ 3.4 bn over a five-year horizon. With best-in-class availability, the
OMS vertical contributed 9.6 per cent of Group revenues in FY13, projected to
increase by over 38 per cent year-on-year, with EBIDTA margins of over ~25 per
cent.

Exceptional items: The FY13 financial result was impacted by non-routine costs, including
foreign exchange losses, asset impairments, tax credit reversal et al, totaling approximately
Rs 1,100 cr.

Board meeting update: The Board of Directors approved an omnibus resolution for
issuance of equity or other equity linked instruments to an extent of Rs 5,000 cr, subject to
the approval of shareholders. This is an enabling resolution to facilitate the Company to raise
funds at an appropriate time, if required.

Liability management: The Company's Corporate Debt Restructuring (CDR) package was
approved and implemented, extending the maturity profile of its domestic debt with a two
year moratorium on principal and interest on term debt, conversion of interest costs into
equity, lower interest rates, and a significantly back-ended maturity profile. Additional
working capital support also became available under the CDR package, helping restart the Suzlon also successfully refinanced near-term foreign currency dues out of a US$ 647 mn
bond, backed by an SBI Standby Letter of Credit (SBLC), and a five-year maturity.

FCCB: The Company continues to be in active solution-oriented dialogue with FCCB-holders,
their advisors, and senior secured lenders.

Business efficiency: The company, under ‘Project Transformation’, successfully reduced
working capital to the targeted 20 per cent at the Group level; as well as reducing net
headcount by over 2,000 and fixed operating expenditure by 20 per cent (on a quarterly runrate
basis) at the Suzlon Wind-level. In addition, REpower announced targeted savings of
EUR 100 mn over FY14, through opex, employees, purchasing and production reductions,
including up to 750 job losses, as well as by reducing material costs.

Orderbook: The consolidated Group orderbook stood at 5.9 GW, approximately INR 42,094
cr / US$ 7.5 bn in value, with an intake of 836 MW in Q4 FY13, and ~3.5 GW over the full
fiscal year.

Execution delays led cancellations of orders in Q4 of approximately 195 MW, including an
order by Coromandel Wind Energy for 75.6 MW and Servtec (Brazil) for 24 MW.


FY14 priorities: The Group’s priorities for FY14 will continue to remain focused around four
key pillars – transitioning to a more asset-light / debt-light model by optimizing our asset
base; monetizing non-critical assets with a target of raising up to US$ 400 mn over FY14;
maintaining our working capital at 20 per cent; and, further optimizing our cash cycle. A key
focus for us remains continuously improving business efficiency at every level. We
continue to work towards lowering break even by improving the contribution margin,
further right-sizing and reducing fixed opex, and optimizing manufacturing through ‘make vs.
buy’ analysis.

The right products for the right markets remains a key competitive differentiator in the
wind energy space, and we continue to invest in R&D to reduce the cost-of-energy; focusing
tightly on core, high-growth and profitable markets; investing in our project pipeline; and
sustaining a quality, profitable order book.




Contact Us

Murlikrishnan Pillai
Tel: +91 (20) 67025000
E-mail: ccp@suzlon.com