On April 9, Senvion filed for German “preliminary self-administration proceedings” in court, thus culminating what had been the chronicle of a death announced a few months earlier. But how did this manufacturer come to this situation? And more importantly, what options are open from now on?

 

A little bit of history

Senvion (formerly Repower) is a German wind turbine manufacturer with headquarters in Hamburg and around 4000 employees worldwide. Its history has been quite turbulent: with a reputation as a technologically advanced manufacturer that was always at the forefront of the race for size (the launch of the 5M in 2003 was a milestone at the time and put Senvion/Repower ahead of Siemens and Vestas in offshore technology), it was bought by Suzlon in full market effervescence in 2007. The merger did not go well and the companies never got together because of the obstacles that Senvion/Repower put in the way of the new owners. Suzlon was hit hard by the crisis and had to sell Senvion in 2015 to the Centerbridge fund for €1 billion. Centerbridge subsequently listed 28.75% of the company for just under €300 million.

 

Senvion in today’s market

Like other mid-sized manufacturers, Senvion faces a low price market with limited tools to compete. As I explained in another post, this is a volume and cost market where the technology race is increasingly fierce and demands greater investment in R&D. In the financial results of the 2Q19 that SGRE recently presented, there is a very illustrative graph where it is seen that currently, all price pressure must be compensated with cost savings per volume in order not to deteriorate the EBIT:

Senvion was, according to GWEC, the No. 13 manufacturer in MWs installed in 2018 and although it has not published the 2018 results, it is estimated to have installed around 1,000MW.

 

How did this happen?

Let’s briefly analyze some factors that have been deteriorating the situation of Senvion:

  • Volume and cost: the transition from subsidies (Feed-in-tariff) to competitive auctions has significantly reduced prices and the margins of large manufacturers have been affected. In this competitive environment, large volume is key to achieving competitive costs and to having greater negotiation capacity with large customers. This trend has been seen in mergers such as Siemens-Gamesa or Nordex-Acciona. Senvion has maintained itself but in addition to not growing via merger, its organic growth has been lower than the market so its volume does not allow it to reach competitive costs to have very short manufacturing series.

 

  • Product catalogue: in the last WindEurope in Bilbao, Senvion was probably the manufacturer with the most extensive onshore product catalogue. In addition, it officially continues to maintain its line of offshore turbines, even making adaptations of onshore turbines for offshore projects as in its project for Renexia. For a manufacturer who installs less than 500 turbines a year this is unsustainable. It is quite obvious that the offshore product should disappear as it has no chance of competing in current projects and onshore, Senvion should focus on 7-8 maximum products, focusing on the products of the future.

 

  • Commercial strategy: Senvion/Repower has traditionally been a strong manufacturer in mature markets such as France, UK, Portugal or USA. In fact, when it belonged to Suzlon, the strategy was that the premium brand was Senvion and focused on mature markets while Suzlon focused on emerging markets. But lately, Senvion has focused on India, probably as a driver of volume growth, but certainly not on margin as India is one of the markets with the highest price pressure.

 

And from now on, what?

So much will depend on the expectations of Centerbridge and the rest of owners as they still have to recover about € 700 million to “not lose money” but bearing in mind that they are an investment fund, their goal will be to get a minimum return on investment. Let’s take a very schematic look at some of the options that are open:

  1. Sell the entire company: there is already speculation in the press but in my opinion, it is not very probable until the restructuring is carried out or at least part of it. If we had to look for candidates for the purchase among the other OEMs:
    1. Vestas: doesn’t seem likely and more so since it seems you are interested in Suzlon.
    2. SGRE: no clear synergies seen
    3. Enercon: still swallowing Lagerway purchase
    4. Nordex: unlikely. They are quite similar
    5. GE: in theory it is the one that can have more synergies both in markets and in products but its latest results with millionaire losses do not predict many adventures.
    6. Chinese manufacturers: they are always in the bets, but the reality is that in the end there is no big operation, so I am always skeptical.

 

  1. Liquidate the company: very unlikely as it would be very complicated to recover the investment for the owners. In addition, Senvion is in a forward-looking sector with good products and an interesting customer base, so there would be no point in selling all that.

 

  1. Restructuring: at the moment it is the chosen option, but it is an option that involves spending a lot of money with an expectation of recovery in the medium/long term. In addition, it has to be done quickly because the current bleeding of customers and projects is not sustainable for long. In fact, Bloomberg published that the line of guarantees of 825 million € that Senvion has, has already consumed half. But where will the money needed to restructure come from?
    1. Current owners inject funds: short term is the only option. A €100m loan has already been negotiated to continue operations, but more liquidity will be needed to continue operations.
    2. Seek new partners: minority partners are not likely to enter without a clear business case.
    3. Sell a part to get money: no doubt that “part” could be the service unit as it is Senvion’s jewel. They are more than 14GW in O&M with 10-year contracts of average duration and with higher revenues per MW than some of their comparable competitors (+25% vs NordexAcciona). And although the current situation will be affecting the contract renewal rate (currently around 75%, lower than the industry average), it is still a very valuable asset and there seem to be customers who continue to rely on Senvion as recently published.

 

We will see how the situation evolves, but in my opinion, if the owners choose the quick exit and decide to sell without restructuring, the price is going to be low and they are not going to recover the investment. If, on the other hand, they carry out the necessary restructuring, a hard (and expensive) desert crossing awaits them, but one that can return value to the company in the medium term.