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Event: WESTA (WES PW) provided an update on its view regarding the company’s short- and mid-term development during the conference call devoted to 9M11 financial performance, held on Nov. 25:
• In 4Q11 the company expects to achieve 10-15% higher prices per battery sold than in 3Q11 due to larger sales of premium and light batteries, which have higher margins;
• In 2012 WESTA expects to produce 5.5 mln conventional batteries (CUs), which may be 6% Y-o-Y higher;
• VRLA line is expected to be put into industrial production in 3Q12, according to the preliminary schedule;
• WESTA is planning to accumulate $60 mln of cash on the books by end of the year 2011 for debt repayment. Cash on the balance sheet was $68 mln as of September 2011.
Impact: The news is mixed for WES.
Rationale: With its plans to repay $60 mln of debt in the end 2011 – beginning 2012, WESTA is going ahead of its debt repayment schedule. Thereby, the company will reduce banking loans and bonds by 18% to $265 mln. Spurred deleveraging of the company will provide relief for WESTA’s bottom line. Net losses in 9M11 were to a large extent caused by the high debt burden. The currency exchange rate for the hryvnya is still at present a significant risk, as the bulk of banking loans are USD and EUR denominated. On the production side, WESTA appears to be well on track with its plans for the VRLA project, though its total production plan for 2011 experienced a 22% cut to 5.2 mln CUs. Its current base expectations to manufacture 5.5 mln CUs of batteries in 2012 are 15% lower than we had projected.