Gamesa: Shareholders meeting
Gamesa hires a Business CEO, Xabier Etxeberria, with responsibility for the group’s business operations
· A bonus share issue for the scrip dividend scheme has been approved which, for the third year running, allows shareholders to choose how they want to receive their remuneration
· “The company has to adapt to compete”, said Ignacio Martín, Executive Chairman of Gamesa. “The main challenge is to come out a stronger enterprise at the other end and bolster our leadership by reinforcing Gamesa’s financial strength and lowering leverage as prerequisites to ensuring a profitable and sustainable future for the company”
· “The company’s flexible approach to manufacturing, combining in-house production with outsourcing to maximise margins and rationalise investments, together with its ability to swiftly adjust capacity to match demand and its track record in streamlining costs, constitute the essential tools for competing in the current environment”
Gamesa's shareholders, attending the Meeting today, have approved the company's management in 2011 as well as the Shareholders Meeting's agenda. They have also ratified the execution of a bonus share issue in connection with the scrip dividend scheme which, for the third year running, allows shareholders choose how they wish to receive their remuneration.
In this Meeting, the Executive Chairman of the company, Ignacio Martín, announced the appointment of Xabier Etxeberria as the company's Business CEO with responsibility for the manufacturing group's business operations.
With an extensive track record in industry and outside Spain, Xabier Etxeberría - a graduate in industrial engineering from Universidad Politécnica de Bilbao - has spent much of his professional career at the automotive engineering specialist group, GKN. In the last 10 years he worked at GKN Driveline, where he served as Managing Director with responsibility over manufacturing, sales and operations (since 2006), among other duties; he was also Chairman of the Board of the Spanish subsidiary and member of its global Executive Committee since 2011. Between 1994 and 2002 he held several positions at GKN Automotive, heading up manufacturing operations and product development and engineering, among other areas.
Gamesa Scrip Dividend Scheme
Gamesa's shareholders authorised execution of the bonus share issue to be charged against reserves, in an amount of up to €11,250,000; the new shares will be earmarked for delivery to shareholders opting to take their dividend in shares instead of cash. This scheme, dubbed the Gamesa Flexible Dividend, supplements the ordinary cash dividend of €0.0068 per share. Payment is scheduled for no later than 15 September 2012.
Each company share outstanding will entitle its holder to a bonus right which can be traded in the market for a fortnight. Gamesa undertakes to buy back the bonus share rights during the stipulated trading period.
Timing-wise, the bonus share issue will get underway on 5 July, when the company announces the number of bonus share rights needed to receive one (1) share and the price at which Gamesa commits to buying the rights back. The issue is expected to close on 1 August 2012, when the newly issued shares will start ordinary trading.
The deadline for applying for cash remuneration is 18 July 2012. The trading period for the bonus share rights will run until 24 July and on 31 July the definitive number of new shares will be duly registered, while those shareholders opting to take their dividends in cash will receive payment.
Elsewhere, Gamesa named José Antonio Cortajarena as non-director Vice-Secretary of the Board of Directors and Executive Committee.
Adapt to compete
In his first keynote address to Gamesa's shareholders in his capacity as Executive Chairman, Ignacio Martín defined the company as a "benchmark endeavour in the development and maintenance of wind turbines, a company that has proven astute in making the most of the benign conditions thrown up during the boom years" which now has to adapt if it is to compete "in the very different conditions that will shape the opportunities in the wind energy sector in the months and years to come". "The main challenge is to come out a stronger enterprise at the other end, bolstering our leadership by reinforcing Gamesa's financial strength and lowering leverage as prerequisites to ensuring a profitable and sustainable future for the company".
2011 was characterised by the exacerbation of the international financial crisis and tensions, most particularly in the eurozone, where the spotlight bore down on the weakness of certain European economies, including that of Spain. Against this backdrop of widespread crisis, mitigated only by the development of the new economic powers where Gamesa has already established a foothold, the company met the guidance provided to the market and made progress on streamlining the cost of energy, developing and diversifying its penetration of new markets and customers and shoring up productivity, "these being the key drivers for reinforcing the Gamesa's competitive positioning and leadership in our industry".
Gamesa generated revenue of €3.03 billion in 2011 (+10%), thanks to a recovery in the manufacturing business, where sales volumes rose 16% to 2,802 MW. "This recovery was enabled by the sales diversification strategy deployed, positioning the company to offset the slowdown in demand in traditional markets". Ninety-two per cent of wind turbine sales was generated outside Spain, with the contributions by India (accounting for 19% of the total) and Latin America (contributing 15%, almost four times the 2010 level) standing out. The volume-led recovery, coupled with cost cutting, enabled the wind turbine division to close 2011 with an EBIT margin of 4%, in line with guidance (4%-5%).
"In short, the company navigated an extremely competitive and complex environment, delivering on the commitments made and reinforcing its position in the wind energy sector. However, last year's share price performance was dictated by the weakness of the global economy, the sovereign debt issues engulfing several southern European nations and surplus capacity in the wind energy business. Not only did Gamesa's share price suffer, those of its main competitors also corrected sharply" noted Ignacio Martín.
Balance sheet strength and profitability
Short term, global economic weakness and questions about the sustainability of public debt levels in the US and Europe are undermining demand in the wind energy industry. Against this backdrop of lower returns on wind power developments coupled with limited access to more expensive borrowings, customers - developers and the major European and US power utilities - are paring back their near-term investment plans. "These uncertainties mean we must take a conservative and rigorous approach to this period of regulatory transition in which we have to guarantee our capital strength and profitability".
However, it is worth highlighting that that lower demand from traditional markets is being partially offset by the boost from emerging markets in Asia, Latin America and Africa, places where the commitment to renewable energies is underpinned not only by the need to fight climate change, but also the imperative of addressing structural energy deficits or excessive dependence on a single source of domestic energy. "That being said, these markets are not without their challenges, both from the financial standpoint and in terms of the lack of infrastructure for connecting wind power up to the grid, circumstances which could affect our company's sales".
Upbeat prospects longer term
Longer term, the panorama is different and much brighter. The United Nations Intergovernmental Panel on Climate Change (IPCC) believes that the contribution of renewable energy to power supply will double to 27% by 2050. Compliance with the agreements reached at the summit on climate change in Cancun would require a much higher contribution of close to 80% of global energy supply.
Within this contribution it is widely accepted that wind energy will play the dominant role in all geographies due to its technological maturity and economic competitiveness. Based on information taken from independent sources, this maturity and competitiveness, together with the turbine makers' continual efforts to reduce the cost of wind energy, imply grid parity in respect of coal, gas and nuclear power by 2016. Indeed, the most recent capacity auctions held in Brazil and Peru demonstrate that wind power can already compete with gas at facilities operating at very high load factors.
Flexible approach to manufacturing
Faced with a challenging and uncertain environment near term, Martín stressed that "Gamesa needs to adapt if it is to come through a stronger enterprise at the other end. The company's flexible approach to manufacturing, combining in-house production with outsourcing to maximise margins and rationalise investments, together with its ability to swiftly adjust capacity to match demand and its track record in streamlining costs, constitute the essential tools for competing in the current environment".
Gamesa will continue to lower the cost of energy, grow geographically, diversify its customer base and enhance productivity. "These drivers are vital to reinforcing the company's positioning in the manufacturing sector", he said, adding that the company "will place special emphasis on lowering the breakeven point and streamlining variable costs. In 2012, Gamesa's financial targets will prioritise capital structure solidity and profitability, sacrificing volumes to this end as necessary".
Cristina Perea Sáenz de Buruaga, CFA. Financial Markets Director