DAF: Interview with Horst J. Kayser

PRESENTER: Hello and a very warm welcome, ladies and gentlemen.
3W Power is AEG Power Solutions' holding company. The company specializes in industrial electricity supply, and more specifically in this case alternative energies, which is a new foothold, and that's what we want to discuss.
These, very briefly, are the key statistics:
Total employees around 1,600 and turnover 343 million euros. With me is Horst Kayser, CEO. Mr Kayser, above all you want future growth to be in the field of renewable energies. Where do you think the main opportunities lie?
 
KAYSER: Yes, Mr Groß. We are very strongly focussed on silicon-based photovoltaics in the field of renewable energies and here, on the one hand, on regulated electricity supply for the actual silicon production process. In this area we have a very strong position technologically and as a global market leader. On the other hand, in the field of inverters, which ultimately take the direct current from the solar panels on the big solar farms and feed it into the network as alternating current. And this is where we see opportunities for growth, primarily in our global plan, as this market is now expanding really widely internationally.
 
GROSS: If someone is already quite strong in that field, has expanded, do you want to launch an attack on SMA Solar's frontier competition?
 
KAYSER: Well, of course there is a whole range of competitors in this market, especially now in the inverter segment. And of course our colleagues from Kassel are in a strong position, thanks to the early start they got in this market segment. We nevertheless believe that we are able to offer outstanding product quality and efficiency based on AEG's strong technological expertise and its lengthy tradition as a manufacturer of power electronics systems and solutions, that we have a strong brand name and, despite not being all that big, that we do have a very well developed global footprint, as we call it, a global presence on which we can build in order to be able to exploit the opportunities for growth in markets such as Eastern Europe, in countries such as India and especially East Asia.
 
GROSS: Let's stay with that for a moment. I once learned at a marketing seminar that in principle you have to be the market leader, or at worst the runner-up. I believe SMA Solar is the undisputed market leader? Where do you see yourselves?
 
KAYSER: Well, who the market leader is, is clear at this moment in time, that's true. It's a market, though, which will experience double-digit growth rates, which will grow 15-20% in the long term, for years, if not decades, and in many countries this market is only just starting to develop. This means that in many places the cake hasn't been shared out at all, but is still up for grabs and we'll be involved, carving out a strong position for ourselves. In the other area which I mentioned, on the subject of regulated electricity supply for silicon production, we're already on course with a very strong market position. This is a field where SMA, for example, is not present at all.
 
GROSS: You just said that in global terms the cake hasn't been shared out yet. You mentioned countries and regions – Eastern Europe, India as a country, and East Asia. I'm sure you didn't mention these regions by chance.
 
KAYSER: No, these will certainly be regions with strong growth in the future. They're not the only ones, though. The solar market is really beginning to develop in many parts of the world. 60 countries currently have around 200 defined supply tariffs, for solar electricity, for example and of course other markets are growing, such as the USA, markets in southern Africa. And then again, due to AEG's existing global presence and ultimately due to our history of industrial electricity supply, we already have good business units everywhere, who can then also promote local growth.
 
GROSS: In December last year 3W Power issued a €100,000,000 loan. That's hardly a negligible amount. What do you need the money for?
 
KAYSER: We needed the money for stable and long-term financing. The bond has been issued for five years and thus ensures we have a solid financial structure. Part of it is for investment in the initial optimization and restructuring measures which we had to embark on at the end of last year, and which will pay out in the second half of this financial year. At the end of last year we had set aside EUR 18 million in reserves for restructuring and payouts of approximately this value are now expected in the second half of this year. On the other hand we needed it to finance our working capital structure, i.e. current assets, which you have to build up if you want to grow so quickly. We will grow by more than 30% this year and there are potentially funds left over for purposeful and targeted technology-oriented acquisitions, which will be used when the time is right. Currently we still have 100 million in cash on the balance sheet, so as I said, in this respect for the time being a sound financing structure has been secured.
 
GROSS: This means that the acquisitions, which you mentioned, depending on the circumstances you could also do this relatively quickly.
 
KAYSER: Yes, on a manageable scale that would be a possibility, absolutely.
 
GROSS: Then I assume that serious discussions are currently in progress. What's your idea of the perfect partner?
 
KAYSER: In this case I like to use Skytron Energy, which we acquired at the start of last year, with its registered office in Berlin, as an example. A specialist in monitoring and control devices for large solar farms. Skytron is a strong, European market leader and has in excess of 1.5 GW installed base in solar farms, with corresponding monitoring and control solutions, as we call them. Skytron was the perfect technological complement to our inverter business, and it was an investment, an acquisition worth between one and ten million. These are the type of complementary technology acquisitions which would make sense for us.
 
GROSS: As we're talking about this financial year, what have you done?
 
KAYSER: Yes, we've committed to strong growth. We're coming from 306 million last year and very early on we issued the guidance that we will land turnover in excess of 400 million this year. We're well on track, especially after our strong second quarter, to achieve that as well, I mean more than 30% growth. And we'll clearly make a profit again this year with, as we said, on course for double digit EBITDA.  EBITDA as earnings before depreciation and amortisation is the figure we use.
 
GROSS: Basically we're in mid-September, the third quarter's not yet over, but it's well on the way, how are things going for you?
  
KAYSER: After Q2 we issued a forecast that, as I said, we're well on track for these targets, and so far that's still likely to be the case even after the end of Q3.
 
GROSS: AEG Power Solutions will be listed in Frankfurt and Amsterdam like holding company 3W Power. What points now support investing in the stock, Mr Kayser?
  
KAYSER: Well, it's very clear we're back on a path to highly profitable growth. We have a stable technological basis in industrial power electronics from the historical AEG, are now using this technological basis, together with the global presence, to access new growth markets. In this respect, I think one would be investing in a very sound security, which is on a strong, profitable path of growth.  And I think that this is currently accompanied by a very attractive valuation.
 
GROSS: Horst Kayser, CEO of AEG Power Solutions, thank you very much.
 
KAYSER: My pleasure, thanks very much, Mr Groß.