More bad news for shareholders -- Vestas suddenly announces 2004 as loss making year

Vestas underestimated the cost of retrofitting its failed turbines at the Horns Reef offshore wind station and its takeover of NEG Micon by EUR 86 million. So reveals a company statement issued to the Copenhagen stock exchange in which Vestas also downgrades its expectations for 2004, just a week before publication of its annual report on March 30. Only in November, company management had projected a 2004 profit of EUR 89 million, now revised to a loss of EUR 7 million. Previously the company had insisted that the problems at Horns Reef would not impact its result for 2004 (Windpower Monthly, June 2004).

xThe bad news, sent to the stock exchange minutes before it closed on March 21, caused Vestas' share price to fall 8% the following day. Vestas reports that restructuring costs following its merger with NEG Micon amounted last year to EUR 115 million. They were budgeted at EUR 67 million. Furthermore, negotiations over the extent of Vestas' liability for the cost of dismantling all 80 turbines at Horns Reef for repairs, in particular to the generators and transformers, and the associated loss of production are still not complete. Vestas has elected to set aside some EUR 38 million in a Horns Reef account.

xPresuming the company believes this to be its share of the costs in a worst case scenario, the indication is that the total cost of the retrofit has been much greater than the estimate of up to EUR 27 million made by outside experts. Aside from Vestas, insurance companies and component suppliers are expected to contribute to the cost of the retrofit.

xxString of orders

xVestas otherwise started the month with announcements of three major contracts with US companies for a total of 420 MW. In Texas, 67 turbines were ordered for the Buffalo Gap Wind Farm, a project development by Seawest Holdings, now owned by AES Corporation. In Oklahoma, 84 turbines are destined for an extension of the Blue Canyon wind farm, to be developed by Zilkha Renewable Energy of Texas and Kirmart Corp of Kansas. And in Columbia County in Washington, affiliates of the UK's Renewable Energy Systems, have ordered 83 turbines for the 150 MW Hopkins Ridge Wind Facility. The project has already been bought by Puget Sound Energy, Washington's largest utility.

xTogether with its downward revision for 2004, Vestas made an upward revision for turnover in 2005 from EUR 2.6-2-9 billion to EUR 3.0-3.2 billion. Profit is expected to be 4% of turnover. Shareholder confidence in the company had been growing up to the March 21 dose of bad news. From December 1 to March 16, the share price had risen nearly 50% from DKK 62 to DKK 89.

xxMove to Spain

xComing as it did amid rising share prices and news of a stream of major orders, the announcement last month that Vestas was closing down their wind turbine assembly at the former NEG Micon works came as an "extreme surprise" for the 175 employees who will lose their jobs, says shop steward Kim Thomsen. In future the turbine assembly done at Randers will be carried out in Spain at Vestas' facility in Vivero in the northern province of Galicia.

xThe move to Spain is part of company restructuring following its merger with NEG Micon, says managing director Svend Sigaard, who from May 1 will be replaced by Ditlev Engel, who comes to Vestas from international paint company Hempel (Windpower Monthly, November 2004). Vestas has two turbine assembly plants left in Denmark, in Ringkøbing and Viborg.