Valuation of Vestas Wind System A/S: A Study Serving for Strategic Purpose

Zhihao Liu

Student thesis: Master thesis


The report is designed to evaluate the strategy appropriation of Vestas Wind System A/S. Vestas Wind System A/S, as one of the biggest international wind turbines manufacturer, has faced serious business fluctuation during the past five years. Even though the business has been recovering over time recently, but whether they have adopted an appropriate strategy remained to be a question. From the financial statements of Vestas Wind System A/S, one can see that both invested capital and cash and cash equivalence have abnormal change in the recent years. The invested capital has been shrinking sharply and the cash and cash equivalence has been accumulating over time. This may indicate an inefficient use of internal fund and incapable of catching the potential business opportunities. Wind energy as an industry with huge potential, the fast growth rate is expected at least for the next decade. Standstill will not be a smart strategy in the wind energy business. As it is revealed in the report, the biggest market potential worldwide both for the past and future decade are in the Chinese market. This doesn’t seem to be in accordance with the strategy of Vestas Wind System A/S. The financial statements show that the revenue source weighted in the Asia Pacific market is much lower than the actual market importance. From year 2014 to year 2015, the revenue generated from Asia Pacific surprisingly decreased while all the other markets get a positive outcome during the time. This makes it a problem that whether the strategy of Vestas Wind System A/S in China is appropriate or not. In order to discuss this issue, the report is divided into three main parts. The first part is to make a valuation of Vestas Wind System A/S to find what is the company’s value under the assumptions of historical performance and current strategy. The second part of the report will be a strategic analysis at macro level, industry level and micro level respectively to see that what kind of competitive position that Vestas Wind System A/S is in and what is the best combination of the competitive strength for the company. The third part will be the other valuation based on the discussion of the strategic analysis from the second part of the report. The comparison of the results between two valuations will be discussed for the strategy appropriation issue. ii In the first valuation, the report firstly conducted an accounting policy clarification. A profitability analysis is made after the reformulation of the financial statements. This analysis will provide information about the historical and current performance of the company. In the assumption, the report seizes the issue of cash and net interest-bearing debt in order to reflect the problem that is discovered before. The valuation outcome is not too deviated from the market price at the end of year 2015, but a little lower than average. This may indicate that there is a good prospect that is generated by the recent turning-around performance for Vestas Wind System A/S. In the second part of the report, a PEEST model (D. Jobber 2010) is firstly adopted for analyzing what kind of macro environment that Vestas Wind System A/S is in. A Porter’s Five Forces model (M.E. Porter 2008) is followed to analyze at the industry level to figure out the competitive position of the company. A resource-based view (J. Barney 1991) is utilized to deem the company as a bundle of resources and capabilities. Among the resources and capabilities, the advantages and the sustainable advantages are identified according to the criteria called VRIN model (R.M. Robert 1991). These resources in the end will from the core competence which help the company to obtain a better competition position in the future development. The second valuation is conducted in the second part. As the purpose of the report is not to focus on an accurate forecast of the company value, but to compare the benefit obtained before and after the strategy adjustment, the forecast on tax, financial instruments and so on are not forecasted in too much details. Though it is a limitation of the report, the compromise regarding the purpose will be regarded as acceptable. The final valuation result is calculated in the end. Comparing to the two outcomes, there is almost a 60% of increase in the company value after the strategy is adjusted. This shows how important the strategy in Chinese market is and the urgency to put endeavor in the Chinese market becomes strong.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2016
Number of pages92