Market share sacrificed to profit -- Vestas hits most targets

Vestas, the world's largest wind turbine supplier, is admitting it cannot both increase its profit to 10-12% of turnover and achieve a world market share of 35%. The company has lowered its expectations to a market share of 30-32%, to be reached next year along with an earnings margin before interest and tax (EBIT) of 10-12%. Its market share in 2005 and 2006 was 28%.

According to Vestas' third quarter report released last month, it is on track to meet those goals. Turnover for the quarter increased to EUR 1.15 billion from EUR 842 million in the same quarter last year and EBIT followed suit, rising to 8.9% from 4.8%. End year EBIT is forecast to be around that level.

Vestas management warns that the company's 80,000 shareholders, including the 3000 foreign investors who today own 60% of the company, should not expect to see a dividend. Instead, at next year's annual meeting the board will recommend letting the money stay in the company. The intention is to raise Vestas' solvency ratio to at least 40%.

The company's 15,000 employees will be offered a performance bonus from January 1 which could give them 5-8% on top of their annual salary if pre-set goals are reached with respect to profit, cost efficiency and customer loyalty.

Among the challenges, Vestas is still facing up to 15 months delivery time on key components, also several years into the future; rising prices of raw material and transportation, "unstable shipments" and "disruption in production," additional warranty provisions "due to sub-standard quality;" and a falling dollar, a risk it will attempt to reduce by expansion outside the Euro-zone, for example in the US and China.

Turnover for 2007 is forecast to end at EUR 4.5 billion and the company is predicting a 25% increase in 2008 to EUR 5.7 billion.

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