Analysis - Vestas CEO Engel happy to move on a year

DENMARK: In this year's Q1 figures, Vestas announced Q1 revenues of EUR 1.096 billion, a 1% decrease on the same period in 2012. However, for Vestas CEO Ditlev Engel this is far preferable to last year's Q1 announcements of a EUR 162 million loss, a postponement of the development of the V164 8MW offshore turbine and the problems with 376 V90 gearboxes.

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Although Vestas lost EUR 151 million this quarter, the company claims the two-year turnaround plan — announced a year ago — is on track. The general feeling among analysts has been in agreement with this, although there is still a lot to do in terms of cost cutting.

Evidently, the improvement is good enough for Engel who, speaking about last year's Q1 announcement, said: "The best way to describe it is, I don't think any of us wants to be one year older but I would prefer May 2013 to May 2012."

Engel cited improvements in terms of capital efficiency and cash flow, and the performance of the turbines where warranty consumption was less than 1.5%. However, more tough love is likely to be forthcoming, with the need to squeeze another EUR 400 million of costs out of the company.

Speaking about where this is likely to come from, Engel said: "Firstly, more than 5,000 jobs were cut last year, lastly a lot of the things have already happened. So we're close to 17,000 staff and want to get to 16,000, so there's still another 1,000-plus that have to go, and that will come from further optimisation of the organisation and divestments."

Recently, Vestas has come under pressure as the world's number one manufacturer in terms of installations thanks to GE's strong performance in the US last year. Looking ahead, Vestas is planning to launch two new turbines for the North American market. The turbines — the V110 2MW and a new V100 2MW — will go into production late next year. The V110 in particular will target GE's 1.6MW low wind turbine.

"The North American market has a lot to do with the industry expecting a decline in 2013 and we've worked quite hard to adapt Vestas for this huge swing," Engel said. "With the extension of the PTC, it's clear we will see a much higher activity level in 2014, but its also clear that 2013 will be lower as the PTC came in so late. But North America has for a number of years been Vestas' biggest market, and we're quite hopeful that we will see the US market pick up again."

Additionally, the company announced three new flavours of the V112 3MW turbine: the V112 3.3MW, the V117 3.3MW and the V126 3.3MW. This follows the launch of the V126 3MW turbine in September last year.

In terms of offshore and the V164 turbine, there was no news on the joint-venture discussions with Mitsubishi. The original announcement of the Mitsubishi discussions were in August last year and since then, both companies have been forging ahead with their own machines (Mitsubishi is planning to test its 7MW SeaAngel turbine). Engel himself appeared to say the company was prepared to go it alone, at least on the development of the prototype, which is due next year.

"On the V164, we have been able to advance the install of the prototype, the parts testing we're doing is moving in the right direction. Vestas will do the prototype plan, and we'll do it on our own"

In 2014, eyes will not only be looking at the V164, but Engel's two-year project to make Vestas more competitive. The success of both are likely to determine how he will look back on 2013.

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