A tale of rising profit and anomalous loss -- Vestas shown up by Bonus

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Despite a 20% drop in revenues, Bonus increased its profit by 20% in the fiscal year before its name change to Siemens Wind Power. The achievement stands in stark contrast to the loss made by rival Vestas on revenues ten times as large. For the current fiscal year, Siemens Wind promises a substantial increase in turnover. Time will tell if profit can follow suit. Last year Bonus' profit margin was 9.3%. Vestas is projecting a profit margin of 4% for this year.

The final financial year for Bonus ran from November 1, 2003 to October 31, 2004, closing a month before its purchase by Siemens. The accounts reveal that turnover dropped from DKK 2.4 billion (EUR 321.9 million) the previous year to DKK 1.98 billion (EUR 265.6 million). But earnings before interest and tax (EBIT) rose from DKK 151 million (EUR 20.2 million) to DKK 183 million (EUR 24.5 million), in a year which included extraordinary costs connected with establishing the company's new blade factory in Aalborg, northern Denmark. Although more expensive than budgeted, the factory is also largely responsible for the improved profit margin.

For this year, Siemens is forecasting satisfactory EBIT, but warns that the annual result can be influenced by integration costs and bonus payments to Bonus employees in connection with the takeover.

Publication of Vestas' 2004 accounts last month attracted little attention, coming a week after management released the headline figures announcing its surprisingly poor result for the year. The news that Vestas was returning a loss of EUR 9 million apparently also caught management unawares. Just a month earlier it was expecting a profit of EUR 89 million. Speculation has been rife about where the money went to and why management only discovered the real state of affairs at the last moment.


The annual report holds the answer to the first question: unexpected extra costs incurred in both the retrofit of all 80 Vestas turbines in the Horns Reef offshore station in Denmark (Windpower Monthly, April 2005) and in the merger with NEG Micon.

Answers to the second question, why the full extent of the situation only became apparent to management at the last minute, are traceable in the report's details. They also indicate what may lie behind the just as surprising disappearance of so many company managers; why vice president Torben Bjerre-Madsen, former head of NEG Micon, so suddenly left his post in the autumn (Windpower Monthly, November 2004), why a string of former NEG Micon middle managers are no longer with the company, and why company president Svend Sigaard chose to resign.

One-off integration and restructuring costs that were budgeted at EUR 67 million actually cost EUR 115 million in 2004. The sum is divided into three parts. Predictable expenses, such as compensation payments for fired employees, office closures and winding up agency agreements, ran to EUR 31 million. Costs for legal restructuring and "adaptation of internal working procedures" were substantially over budget at EUR 60 million.

The third one-off cost, EUR 24 million for "re-classification of lower margins than expected on sales contracts made in NEG Micon before the combination," confirms fears, also expressed internally, that Vestas was not aware of the full extent of NEG Micon's problems before the merger.

Problems with gear boxes and bearing failures in NEG Micon turbines have long plagued the company -- and continue to do so (Windpower Monthly, October 2004). But the annual report also reveals that before the merger Vestas held, or was furnished with, overly optimistic expectations for income on NEG Micon orders, which were the attraction for Vestas when Sigaard and Bjerre-Madsen first began their talks.

An error of calculation amounting to EUR 24 million is difficult to accept as the result of a "qualified guess" as Sigaard put it, with reference to "the experience we had and the advice we were given." The advisors -- the lawyers, banks and accountants -- involved in the merger of Vestas and NEG Micon and the following share capital increases, received EUR 27 million, according to the accounts.

Vestas' management in 2004 was rewarded with a salary rise from EUR 1.1 million to EUR 2.8 million. In percentage terms, the salary increase was the highest among 17 of the largest companies listed on the Copenhagen stock exchange, according to Danish financial newspaper Børsen.

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