Board announces all change at the top -- Vestas' share price drops

It has been a turbulent few weeks for Vestas. First, in a terse one-sentence statement, was the announcement that Vestas, with immediate effect, was parting company with its second-in-command, Torben Bjerre-Madsen, the former head of NEG Micon prior to the merger of the two companies in March this year. Then came the news that GE Energy had walked off with the massive Quebec 1000 MW order, in a Canadian market that until now has been dominated by Vestas and NEG Micon. Next, a powerful new competitor entered the scene in the shape of Siemens and its purchase of Bonus -- within hours, equity research company Bear Stearns downgraded expectations for Vestas' share price "on the back of Siemens' announcement." Less than a week later, Svend Sigaard, managing director of Vestas, resigned.

The impact on Vestas' share price has not been good. At the start of last month, after a modest rally in September following the news that the federal production tax credit for wind in the United States had been extended, the price was DKK 90. By the close of October it had lost 18 points and was floating around DKK 72, a drop of 20%.


Sigaard, after 18 years with Vestas, formerly as its financial officer and in the past three years as company boss, is to be replaced in the spring by Ditlev Engel, 40 years old and currently managing director of a privately owned Danish industrial paint company, Hempel A/S, an international specialist in marine anti-fouling. In its choice of Engel, who was head-hunted for the job, the Vestas board stresses his "international experience." Engel has worked for Hempel, a leader in its field, for 20 years. At the time of his promotion to the top job in 1999, the chairman of the Hempel board was Bent Carlsen, today's Vestas board chairman.

Explaining his resignation, Sigaard says, "It seems to be the right time to let other people take over." With the merger of Vestas and NEG Micon to be completed by the spring, it is the right timing for a change at the top, he adds.

Sigaard, 46, will leave Vestas after the company's annual general meeting at the end of April next year, and no later than June 1, 2005. The timing of the announcement of his resignation to the Copenhagen Stock Exchange has given shareholders a minimum of six months to digest the fact. Torben Bjerre-Madsen, however, cleared his desk in four working days. Late in the day on the last Friday in September came the brief statement: "By mutual consent, the Board of Directors and Executive Vice President and Deputy CEO, Mr Torben Bjerre-Madsen, have agreed to terminate the co-operation effective end of September 2004."

Bjerre-Madsen left the company against a background of emerging problems connected with failing gear units and bearings in NEG Micon 750 kW turbines operating in Denmark and overseas. Most recently, Denmark's association of wind turbine owners took the unprecedented step of warning the owners of these turbines not to accept the two cheapest of three retrofit solutions that Vestas is offering the stricken owners for prices between EUR 8270 and EUR 78,330 (Windpower Monthly, October 2004). Torben Bjerre-Madsen declined to comment on the warning. At least one other turbine model is also affected.

Vestas' flagship 2 MW offshore turbine has also suffered a series of component problems, with the schedule slipping on the retrofit of all 80 units at the Horns Reef offshore wind plant (page 49). Furthermore, the company is undertaking a retrofit of failed gear units on Vestas 660 kW turbines still under warranty at the exposed Tararua wind plant in New Zealand.

Sigaard denies that the technology problems, particularly with regard to the NEG Micon failures, are as serious or comprehensive as described. He says that in the lead up to the merger with NEG Micon, Vestas received knowledge of all ongoing matters. He declines to comment on the quality of the retrofits being offered to the owners of NEG Micon turbines.

The gear unit and bearing failures in the turbines do not represent a direct economic threat for Vestas -- the machines are out of their warranty periods. Furthermore, the merger of the two companies led to a significant reduction in the product program, with most of the NEG Micon models dropped from it, including all those rated at less than 1 MW. An apparent exception, however, is the sale of 54, NM 750 kW turbines to a customer in Spain, announced by Vestas last month (page 42).


The risk Vestas does face, however, is the damage to its reputation that technology failures can cause, warns the Danish wind turbine owners association in the October issue of its magazine to members, Naturlig Energi.

"With its takeover of NEG Micon, Vestas assumed an order portfolio which means that NEG Micon turbines can be replaced by Vestas turbines in England and other markets where it had a weak presence. At the same time, Vestas ... took over a series of technical problems, which in the coming years risk putting Vestas' traditionally good reputation at risk."

The magazine adds: "Turbines with problems are in many cases out of their warranty periods and thus the customers' problem. Formally, that is. What the cost is to the company's reputation if Vestas turns its back on costly failures on turbines that are only a few years old remains to be seen."