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Denmark

Bigger deficit than expected -- First half year for new Vestas

Lost orders for 150 MW of wind plant in the United States, plus extraordinary expenses on projects and in connection with its merger in March, wiped EUR 1.2-1-3 billion from revenues and led to the new Vestas/NEG Micon concern reporting a loss of EUR 54 million for the first half of 2004. The loss is twice as much as expected, but according to company management will be made up for in the second half of the year, where two-thirds of the wind power industry's turnover traditionally occurs.

And turnover is rising. In the first six months of 2004 Vestas reports sales of EUR 874 million compared with EUR 659 million for the first half of 2003. For the whole year, Vestas predicts a profit margin of 4% of turnover. Until adjusting its expectations for the year on August 9, Vestas had previously predicted a 5% profit margin for 2004. In the longer term, the official goal remains at 10%. In 2002 and 2003 it was 5.3% and 4.5%, respectively.

Employment is also rising at Vestas. The last of 475 workers dismissed in connection with the merger in March are due to leave the company this month, with the first having left in May. Nonetheless, the total number of employees rose from 9249 at the close of 2003 to 9510 at the end of June.

A number of answers to long standing questions are contained in Vestas' first half year report, including whether the merged company will be able to retain the combined market share of around 35% previously held separately by Vestas and NEG Micon. According to management, the company's share of global sales has risen in the past six months; no percentage figure is given. Despite fewer orders by the end of June than expected, Vestas remains optimistic about nearly all its geographic markets, which is the basis for its decision to open a blade factory in Australia and its consideration of production facilities in China and North America.

Wind turbine models from both the Vestas stable and the NEG Micon stable remain in the product line for further development. The Vestas 3 MW is to be developed for equipping with a 100 metre rotor; NEG Micon's 4.2 MW turbine is to be stretched to 4.5 MW with a rotor span of 120 metres. The machines are scheduled to hit the market in 2005 and 2006, respectively.

Product line

On the technology front, Vestas has decided to continue development of NEG Micon's wood-carbon-epoxy blades, currently from a base in southern England, but using Vestas' blade profiles. The combination holds the potential for longer and cheaper blades, says the company. For wind turbine electronic control systems, the company is combining the separate concepts developed by the two companies. And a patented magnet system is to be used in the manufacture of towers, saving on welding work and making possible lighter and cheaper towers.

Wind project development, which NEG Micon carried out as a separate business outside of Denmark, often in tandem with customers, "will not be a part of Vestas' business area," states the company. It promises, however, to offer assistance to customers in the relevant phases of the project development process.

American ownership

After the first half year of 2004, including four months as a newly merged company, Vestas' management points out that three important elements are now in place: a successful rights issue, which added DKK 282 million to Vestas' share capital; the move of its headquarters from Ringkøbing in the far west of rural Denmark to the more centrally placed town of Randers; and it its future product range.

Left to achieve are the economic targets that shareholders are most interested in. The largest single stake in Vestas is held by California investment fund. Franklin Resources, which in connection with Vestas' half year report announced that it now owns 20.05% of Vestas. The news raised eyebrows. In May, with 15% of shares in hand, Franklin Resources declined to participate in the rights issue. It has bought another 5% since then. Seldom does a large capital investment fund take such a large share of a company unless it has a good reason for doing so.

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