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Denmark

Denmark

Navigating deep waters

Just as the final pieces of the NEG Micon takeover puzzle were falling into place--the crucial share capital increase and a big new banking facility--news broke that all the turbines at the company's flagship offshore wind power development, the two year old Horns Reef station in the North Sea, may be taken down for repairs. Screaming press headlines in Denmark told of "fatal faults" and a "scandal."

It was a lively month for Vestas. Just as the final pieces of the NEG Micon takeover puzzle were falling into place-the crucial share capital increase and a big new banking facility-news broke that all the turbines at the company's flagship offshore wind power development, the two year old Horns Reef station in the North Sea, may be taken down for repairs. Screaming press headlines in Denmark told of "fatal faults" and a "scandal." Icy chills of foreboding raced through the global wind industry, which is all too familiar with a history of major players collapsing, or nearing the brink of collapse as with NEG Micon just a few short years ago.

The technical problems at Horns Reef (page 19) are not as serious as sensationalists and sceptics working overtime last month would have us believe. Wind power opponents and offshore doubters delightedly rode the shock-waves of bad news as far away as Cape Cod on the United States east coast, but Horns Reef has not suffered a major series failure and does not have problems that cannot be solved. The picture emerging is of a mass of relatively minor component defects which, when combined, could be quicker and cheaper in the long run to repair on land. A mixture of quality control deficiencies and a walk up a steep learning curve is not the sounding of a death knell, not for offshore wind power and certainly not for Vestas.

Significantly, Vestas' share price barely moved during this time. Stock market analysts largely ignored the press battering and the rush of gossip and fear-mongering it provoked. Did the stock market know something more than the rest of the wind world? Did it know less? A bit of both is the answer.

With most of the press fuss happening in Denmark and in Danish, the bad news on Horns Reef seems to have been largely missed in the bigger world. What the stock market focus was on was Vestas' speedy

action to follow through on its plan to raise more equity from its shareholders (page 20) and more elbow room from its banks. Within days of the official date of its join-up with NEG Micon on May 19, Vestas was well on the way to successfully completing both parts of the fund raising, with its share price actually rising past its expected level. The bank market was similarly receptive, with the size of Vestas' requested bank loan being raised from EUR 400 to EUR 450 million on the back of strong demand from the banks.

What the stock market knew was that Vestas, with close to half a billion extra euros close at hand, was on the road to becoming better capitalised and more able to withstand expensive technology setbacks. Fitting the financial pieces of the puzzle into place is a critically important achievement for Vestas. In a world of bigger projects, bigger competitors (GE), and bigger turbines with bigger technology risk, a bigger balance sheet is essential.

Out at Horns Reef, a healthy seagull flight from Vestas' main factory on the west coast of Denmark and a long flight from the general press, the indications are that the company is doing the right thing from a customer perspective. The problems, mostly known about for months and reported in this magazine, are being identified and solutions found. Project owner, utility Elsam, seems happy enough and relations appear relatively harmonious even with the supplier of the generators on which the most recent fault has come to light.

Vestas is deciding whether or not to take the turbines down. As long as the repairs are carried out at sea, suppliers have contractual obligations to fulfil and insurance plays its part. But dismantling the turbines and re-installing them will cost Vestas a packet. Even so, its contingency fund for dealing with the problems seems to be adequate-the company says the Horns Reef repairs are not expected to affect its projected

financial results.

Asleep at the helm

None of this is to say that Vestas' management of the Horns Reef situation last month was good. Far from it. Effective setback management is about more than securing a sound capital base. It also requires a highly professional approach to public relations damage control.

Creating confidence in the company and its troubleshooting ability is vital to retaining shareholder trust. Lose that and Vestas can wave goodbye to its new found capital. Burying the information that the Horns Reef turbines may have to come down in a single sentence in a hefty prospectus was unprofessional. Not mounting a pro-active response to the first press panic borders on the appearance of being asleep at the helm.

A company that is forthright in the face of adversity is a company to believe in. That means clear, lucid and timely public statements. Anything less is taken as an indication of guilt. At best it breeds fear of a cover-up, at worst that problems are running out of control. Had the international press picked up on the sensational Danish headlines,

Vestas' share price could have taken a nose dive at a highly critical juncture.

As the largest independent company in the industry with by far the largest global share of the market, Vestas has a responsibility to the sector to get its act together. It is Vestas that must raise the bar for the entire industry's level of professionalism. Only by inspiring confidence in its professional abilities will the industry secure access to the increasingly large volumes of capital it needs to continue its growth.

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