Less growth but more profit -- Vestas' annual report

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With a modest rise in revenues and a much improved profit margin, Vestas in 2007 relinquished its aim of a market share of 35% to focus instead on securing profitable orders. Revenues last year increased by EUR 1007 million to EUR 4861 million while market share dropped from 28% to 23%. Profit increased from 5.2% of revenues in 2006 to 9.1%. This year Vestas expects revenues to grow to EUR 5.7 billion and its profit margin to hit 10-12%, though it also expects its market share to rise to 25%.

Lying behind the company's improved profitability are the higher prices for wind turbines achievable in a market where demand is outstripping supply. Vestas expects it will be several years before production can keep pace with a market growing at 20-25% annually. Within ten years, that rate of growth means wind power should be supplying 10% of the world's electricity, compared with 1% today.

Vestas started 2008 with orders for EUR 4.8 billion compared with EUR 4 billion a year earlier. The company had 15,305 employees, with 12,996 in Europe, 2266 in the Asia-Pacific region and 1022 in America. This year it intends to add another 2700, particularly in Europe. It is also building new factories in China and the United States -- a foundry in China and a tower unit in the US. By the end of the year it will have increased production capacity by 3000 MW. Last year it supplied 4974 MW, handing over 4502 MW of completed projects to its customers. The company blames its decline in market share on the entry of Chinese companies and "an increase in work in progress."

Public safety

One of the company's many slogans, "people before megawatts," has taken on an extra dimension beyond its original meaning that staff should be hired before production of megawatts is increased. Not only is the slogan now applied to reducing work related accidents but also to securing public safety should a wind turbine shed any parts or topple over. A much publicised wind turbine collapse in Denmark in February (Windpower Monthly, March 2008) lies behind the increased focus on public safety, though nobody was injured. Vestas says it will conduct a study of selected wind turbines that are located near residential areas, roads and other areas close to human activity.

With regard to accident frequency the aim is to halve industrial injuries registered in 2007 to 15, measured in terms of more than one day's absence per one million working hours. By 2012 the frequency is to be reduced to five. Lowering accident frequency is to be part of Vestas' global bonus program, which from this year is open to all employees. Improving customer satisfaction is another reason for the focus on accident reduction. Vestas' poor reputation among customers is described as "very unsatisfactory" by management. In particular customers are dissatisfied with the operational reliability of turbines and their service agreements with Vestas.

For its part Vestas again complains about poor quality of delivered components. "One of the greatest impediments to growth, development and improved profitability is quality failures in a number of wind turbine components, as well as a much too unstable supply situation," it states. It is likely that quality failures will again hit profits, Vestas warns. Once again an amount equal to 5% of revenues was set aside to deal with warranty repairs, a situation described as "inline with expectations but still highly unsatisfactory." A stronger focus on quality and testing is expected to reduce the need for warranty provisions.

In 2007 Vestas delivered 2087 MW of wind turbines to Europe, representing 54% of its revenues; 1543 MW to North and Latin America, representing 29% of revenues; and 926 MW, representing 17% of revenues, to the Asia Pacific region with China, at 458 MW, by far the largest market, followed by New Zealand (151 MW) and India at 150 MW. The biggest national market for Vestas by a long shot was the US at 1288 MW, with Spain its next largest market at 551 MW.

Of the 227 Vestas' customers taking delivery of wind turbines this year, 49% (2170 MW) are in Europe, 44% (1775 MW) in the US, and 11% (470 MW) in the Asia Pacific region.

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