New strategy focuses on investor interests -- Vestas prioritises profit and drops North American factory

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Vestas' new managing director, Ditlev Engel, has launched a major reorganisation of the company. Publication of a new strategic plan on May 26 -- with a priority focus on profitability and cost cutting ahead of growing Vestas' slice of the global market -- pleased investors, who sent share prices up by 10% within hours. Engel's plan also involves major spending in increasing Vestas' technological lead in megawatt scale turbines.

The plan was announced on the same day as Vestas' report for the first quarter of the year. Projections for a 2005 turnover of EUR 3.0-3.2 billion are retained, driven in particular by record sales of 618 MW on the American market, along with a profit margin of 4%. This year, orders from main wind markets Germany and Spain are also in line with expectations, says Vestas.

Reaction from stock market analysts, used to downward revisions from Vestas, ranged from positive surprise and pleasure at Engel's aggressive start, to caution and outright scepticism about whether his goals are achievable. Engel took up his new position on May 1 after a career in Hempel, a privately owned, Danish international industrial paint company.

Engel's main priority is to boost Vestas' profit margin from a projected 4% in 2005 to 10% by 2008. Of the missing 6%, "reduction of costs related to component failures" will fetch 2%. He admits that better quality and fewer failures will require fewer warranty repairs and Vestas will be making greater demands on its component suppliers.

The remaining 4% will come from "reduction of fixed costs," which in particular will be achieved by cutting "administrative double functions." Early victims are sales director Jens Anders Jensen and production director Knud Andersen, who leave both the directorship and the company. In addition, technical director Mogens Filtenborg chose to resign from May 31. Filtenborg was the last remaining leader prior to the 2004 merger of Vestas and NEG Micon. Left in charge are Engel and chief financial officer Henrik Nørremark.

Higher prices

The drive for higher profit will also be realised through higher prices on Vestas' products and services, rejection of orders without a decent profit attached to them, better production processes, improving the sales flow to reduce the traditional end-of-year delivery bottleneck suffered by most of the wind industry, dropping long-held plans to manufacture wind turbines in North America, and better communication within the company, with customers and with investors.

Indeed, an "appreciable upgrade" will be made to investor relations. "We will professionalize our dialogue with customers, we will improve the quality of our products and we will be much more effective in all that we do," says Engel, who wants to create a "global Vestas" and names his strategic plan, The Will to Win.

Aside from increasing profit as a first priority, Engel's plan is for net working capital at year end is to be a maximum of 20-25% of turnover, down from 25-30%. As a third priority, Vestas' former goal of retaining a market share of at least 35% is kept, though with far less emphasis. "We will primarily focus on the improvement of the profit margin -- no doubt about that. This does not imply we have rejected growth, it just has to be profitable," says Engel.

The company reorganisation includes establishment of three new business units, Offshore, People and Culture, and Technology. Offshore is an area best managed in a specialised unit, says Engel, while the personnel focus is to "secure a smooth cooperation between units and employees in Denmark and abroad." The technology unit will strengthen Vestas' innovation and patent activities.

It will also lead to the establishment of two new research and development centres. Construction of the first, "a high end technology centre" with 500 employees, starts this year in the large Danish town of Aarhus, 25 kilometres from Vestas' headquarters. As one of the area's "most attractive high-tech work places," Vestas hopes to attract more research and development staff to add to the around 450 it has already. Competition for specialists is keen in the region. Two overseas competitors, Spain's Gamesa and India's Suzlon, have set up in the same area. The second centre will be in Asia, though a location has yet to be decided.

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