Vestas CEO, Ditlev Engel



The world's biggest wind turbine manufacturer, Vestas, has announced plans to lose 2,335 employees worldwide, stop production at one of its 26 plants, and has warned that further cuts are likely, in order to save €150m by the end of the year.

This is the third time the company has cut its workforce in as many years; 3,000 were sacked in 2010, and there was the closure of its Isle of Wight factory in 2009 despite massive opposition.

The Danish firm had recently issued its second profits warning in three months and its share price has fallen to its 2003 level.

Its CEO, Ditlev Engel, blamed the fall on €125m of cost overruns and €400m of lost or deferred revenues that removed €130m from the year's profits.

Ironically, it has suffered from high winds at the end of last year, which hindered the installation of turbines in the North Sea, causing €210m of the deferred revenues, although they are expected to be recouped soon, when weather permits.

Vestas does have a full order book, including an order announced at the end of 2011 for 54 MW of turbines from a UK customer.

U.S. subsidy end


Behind the redundancies lie unrealistically high expectations of demand for its products from China, and the likelihood of a loss of demand in the USA caused by the removal of the Production Tax Credit subsidy at the end of this year, which pays wind producers 2.2 cents per kilowatt-hour generated.

Vestas has told the U.S. Congress that if it fails to extend the credit, the company will have to close U.S. facilities, at a cost of 1,600 more jobs.

“2012 will become a very challenging year for the wind turbine industry due to a significantly reduced US market”, said Engel.

“In 2011 in particular, the Chinese market has not developed at a speed anticipated when the year started,” he also admitted.

The company has invested $1bn in factories in America, after President Obama said when taking office that he wanted to support the wind and solar industries to promote energy security.

More than Vestas' jobs are at stake: the American wind industry employs over 75,000 people.

The American Wind Energy Association argues that a consistent level of tax credit is essential in order to avoid the boom and bust cycles that have plagued the industry in the States in the past, and are the reason why Denmark and Germany are now world leaders in wind power, and not the U.S.

Management shake-up


Some have blamed Vestas' troubles on poor management, which, Engel admitted, has given it a "not undeserved" "credibility problem".

For example, it had severely underestimated the costs of increasing the manufacturing of its V112-3.0 MW turbine. Analysts fear that this might not be a unique error and that other cost overruns may be hidden in the balance sheets.

”I can certainly understand if employees as well as people outside Vestas consider us to be in a state of crisis,” admitted Engel in a statement.

"We have to work our way out of this situation and the only way we can do that is by proving that we with our global presence, high customer satisfaction and the industry’s best performing wind power systems will come out stronger after the elimination race which is currently taking place within the renewable energy sector,” he said.

There had been speculation that Engel could be forced of the post he has occupied for six years as president and CEO.

Management is being shaken up; however, Engel will stay.

Ander Søe-Jensen, Bjarne Ravn Sørensen, Finn Strøm Madsen and Peter Wenzel Kruse are all to leave the company.

Henrik Norremark, the former Chief Financial Oficer, is to become the new manufacturing COO, and a new deputy CEO, sales CSO and turbines CTO have all been appointed.

The company is seeking a new finance CFO and global services and solutions CSSO.

A company statement said that "Executive Management is extended to six members to allow greater functional focus on all key parts of the value chain and to drive a stronger performance management.

"And a Global Solution and Services unit will contribute to improving the performance of both existing and upcoming wind power plants and accelerate the development of the services and solution business."

The company is also being reorganised in accordance with the five main elements of its value chain, including the separation of Technology R&D into research and development.

1,600 of the redundancies are to be administrators and 735 are hourly-paid employees.

After the layoffs, Vestas will employ 20,400, a quarter of whom are in Denmark.

General crisis


The turmoil is part of a general situation in the wind and solar industries which, having grown on the back of pubic subsidies, are achieving maturity and now having these subsidies removed, perhaps more prematurely than they should be, due to the ongoing economic downturn.

Vestas does, however, have a record backlog of orders, and Engel reported this morning that "We have seen quite positive interest from some major pension funds into doing investment in this sector".

He said Vestas' treasury function, which has been relocated to Switzerland, was looking into opportunities that could be provided by such financing for wind projects.

"There are some new major funds that are interested in participating in major infrastructure project development," Engel said optimistically.