Wind power Vestas – 6,567 MW during the first nine months

Vestas reported a third-quarter profit and a positive free cash flow following the loss in the first half year of 2010. Vestas generated third-quarter revenue of EUR 1,722m against EUR 1,814m in the year-earlier period.

Vestas has this morning announced that the company plans to lay off around 3,000 employees and to close four units in Denmark and one in Sweden – a total of five units in all. In addition, a number of staff and support functions worldwide will be adjusted.

The reason is that Vestas, as the world’s largest wind turbine manufacturer, has at the moment many more employees and a much greater capacity for the European market than there is expected to be orders for in 2011.

"This is a very sad situation. Not least because, globally, Vestas is stronger than ever before. Right now we are increasing our market share, this is exemplified by the order intake of orders in 2010,” says CEO Ditlev Engel.

Engel elaborates: "In Denmark we have held our breath for a long time to retain our talented employees as long as possible. Based on the expectations we have for 2011 in Europe, however, we must now recognize that a higher European level of activity will not be realistic – at least not in the short term. "

"The distribution between the regions of Europe, North America and Asia is today, out of balance, and the situation in Europe is very clear when you look at the number of orders in relation to how many employees we have. To ensure the competiveness of Vestas, we therefore have to act in a very offensive and very drastic way today."

"So far, our Danish factories have served large parts of the European market, the U.S. market and several other markets. But as a key building block in making Vestas a truly global company with competitive strength in all markets, we need our factories to be close to our customers. In short: the situation has changed.

Today we are up and running with global production, and it has always been the plan that the Danish units should especially serve the traditionally high demand from Europe. But when the demand has not returned to the extent we had anticipated, we will have to trim parts of the organization, particularly as it is in Denmark, that the cost of production is the highest."

"Today it is cheaper for Vestas to manufacture a wind turbine in Spain and ship it to Sweden than it is to send it out of Denmark. And if you should send a turbine from one of our Chinese factories to Denmark, the total costs will be the same as if it were produced in Denmark. In short, Vestas must always be able to compete against what we call Asia-cost plus freight. And that is unfortunately not possible with the current overcapacity in Northern Europe where the cost level is too high, "says Ditlev Engel.

By the end of 2010, Vestas expects to have more employees worldwide than when the year began, at about 21,000, of which more than 6,000 will be situated in Denmark.

EBIT margin was 10.7 per cent, against 13.5 per cent in the third quarter of 2009. Net working capital stood at 25 per cent of expected annual revenue, and the free cash flow was EUR 180m against EUR (203)m in the third quarter of 2009.

During the first nine months, Vestas’ intake of firm and unconditional wind energy orders amounted to 6,567 MW, which is the highest level ever recorded.

At the end of the quarter, the order backlog amounted to 5,884 MW with a value of EUR 5.7bn. Safety at Vestas’ workplaces was improved further, and green energy accounted for 44 per cent of Vestas’ total energy consumption.

At the beginning of 2010, Vestas resolved to retain substantial excess capacity in Europe in expectation of an increased demand of wind turbines in 2010 and 2011.

In 2011, the European wind farm market growth will, however, not live up to Vestas’ expectations, which is why Vestas is compelled to adjust its capacity in Europe.

To ensure the most efficient production, Vestas has decided to initiate negotiations with the relevant parties in relation to closing down of a number of factories, primarily in Denmark, where costs are highest.

In addition to this, a number of administrative functions will be adjusted at several locations in and outside Denmark. In total, around 3,000 jobs will be abolished in connection with the adjustments.

In the fourth quarter of 2010, an amount of EUR 140-160m will be expensed as “one-off costs” (exceptional operating items) in the income statement, which primarily will consist of write-downs of property, plant and equipment and costs in relation to lay-offs of employees. Adjusted for the above, Vestas retains its expectations for 2010 as announced in August.

For 2011, where market uncertainty and competition are still high, the intake of firm and unconditional orders is expected to amount to 7,000-8,000 MW. The activity level measured in terms of produced and shipped MW is expected to amount to approx 6,000 MW. In 2011, Vestas expects to generate a positive free cash flow after investments of a total of EUR 650m.

Q3 2010 at a glance (against Q3 2009)
– 27% Vestas shipped a total of 719 wind turbines
– a decrease of 27 per cent
– 11% Vestas shipped wind power systems with an aggregate capacity of 1,456 MW
– a decrease of 11 per cent
– 5% Vestas generated revenue of EUR 1,722m
– a decrease of 5 per cent
– 24% EBIT amounted to EUR
– 24% Profit after tax amounted to EUR 126m
– a decrease of 24 per cent
+ 16% The number of employees reached 23,443
– an increase of 16 per cent
– 23% The incidence of industrial injuries per one million working hours was 5.5 – a reduction of 23 per cent
+ 5% points The share of renewable energy was 44

During the first nine months of 2010, Vestas recorded a loss due to the very low capacity utilisation in the first half year. During the third quarter, the activity level increased considerably, with revenue amounting to EUR 1,722m, which is a little below the level for the third quarter of 2009.

The gross margin increased to 21.1 per cent from 20.8 per cent in the third quarter of 2009 despite the capacity expansion over the period. EBIT margin declined to 10.7 per cent from 13.5 per cent in the year-earlier period, primarily due to increased R&D costs. Cash flows from operating activities amounted to EUR 362m – an increase of EUR 367m compared to the third quarter of 2009. Capacity utilisation and the cash creation will increase during the remainder of 2010.