Vestas' share drops to 13% - is the world leader close to being toppled?

DENMARK: Vestas failed to achieve its budgeted turnover in 2009 but did reach its projected profit. The company's annual result is being heralded as an all time record, but the price of that achievement could be that Vestas is reaching the end of its 20 year run as the company supplying more wind turbines to the market than any other.

Vestas president and CEO Ditlev Engel

One of the likely contenders to take over Vestas' mantle is long time competitor Siemens Wind Power, also based in Denmark. Last month it laid claim to an order book of €7000 million and repeated its goal to be one of the top three suppliers by 2012. Vestas' budgeted revenue for 2010 is €7000 million.

Vestas reports a 12.9% profit margin for 2009 before interest and tax on a turnover of €6636 million. But going into 2010 it already faces a barrage of stiff challenges. First, despite the disappointing result of the UN's Copenhagen climate change summit in December, Siemens is just one of several large, experienced and financially strong multi-national companies to have recognised the true potential of the wind turbine sector, General Electric, Mitsubishi and Samsung among them.


Vestas no longer sees itself as the largest supplier, but as the market leader, a position it intends to retain. That may be difficult. The global financial crisis has increased customer demand for delivery of so-called turnkey projects, fully complete and ready to go online at the turn of a key. Several years ago, Vestas chose a strategy focused on increasing the number of orders for delivery of turbine hardware only without ancillary services.

Second, incoming orders to Vestas in 2010 will not be reflected in revenues and profit until well into the year, predicts the company. It warns investors that quarterly swings in turnover will be more pronounced this year than in 2009 and, in particular, it expects to see most of its revenue occurring in the second half of 2010.

Third, the financial crisis has caused lenders to require far more substantial documentation in connection with orders. Long term, Vestas sees that as a positive development, but the new demands are delaying its order intake. Vestas' management reports that it is only now that it can see evidence of serious signs of a return to normality in the financial markets.

Projections for 2010

Although at a budgeted €7000 million Vestas is projecting an increase in revenue this year compared with last, it does not expect its profit margin to follow suit: after 12.9% in 2009, the margin is expected to drop to 10-11% in 2010. The slow down in profitability is partly blamed on over capacity in manufacturing and partly on plans to employ a further 1300 workers this year to bring total staff to 22,000. Vestas' long term goal continues to be a 15% profit margin on annual turnover of €15,000 million in 2015.

In 2009 Vestas shipped wind turbines with a combined capacity of 6131MW, a whisker down on the 2008 total. Of these, 4764MW reached customers before the end of the year: 2772MW was delivered in Europe, 1304MW in North and South America, 683MW in the Pacific-Asia region and 15MW in Africa. In 2010 the company expects half its orders to go to Europe, 30% to North and South America and 20% to the Asia-Pacific area. It will be the first time in nearly two decades that European customers lose their domination of the business.

On the technology front, the promised Vestas 6 MW turbine for offshore application is under development and "must dramatically reduce" the cost of energy production "compared with all known competing projects," states the company.

Among the good news for Vestas is that its service business achieved a 15% profit margin, maintaining it as the most profitable company activity, and the rate of industrial injuries fell from 15.6 to 8.1 per million working hours. Employees have become more engaged and are rewarded with a total bonus for 2009 of €60 million compared with €38 million the previous year. Last but not least, customer loyalty, after several years of stagnation, has increased by 12 points to reach an index of 64.

Rival Siemens

The company's annual report reveals that Vestas continues to lose market share, dropping from over 20% in 2008 to 13% in 2009. Back in 2008 the company relinquished its aim of a 35% market share when its slice in 2007 fell to 23% from 28% in 2006. According to Vestas board chairman Bent Carlsen, the dwindling market share is all part of the company's current strategy to prioritise profit higher than beating its competitors on sales volumes.

Exactly when Vestas is toppled as industry king pin is becoming an ever more poignant question. At the end of 2009, Vestas could report orders for €2200 million, a reduction from €3500 million reported at the end of September last year. In comparison, the head of arch rival Siemens Wind Power, Andreas Nauen, announced last month a bulging order book for the German conglomerate's Danish wind turbine department of €7000 million. The department delivered €114 million of the €121 million profit reported for Siemens Danmark.

Nauen restated his ambition for Siemens to be numbered among the top three wind turbine suppliers globally in 2012. Achieving that goal will mean displacing current leaders Vestas, American GE Energy, or Spain's Gamesa, or all three. Siemens Wind Power reported revenues for its financial year, which closed September 30, 2009, of €2100 million, an increase of 14% from the previous year.

Nauen further reported that the weakened state of the global financial industry has meant some customers demanding that Siemens co-finance projects. The Siemens conglomerate's ability to offer financing, in much the same way as GE is able to, will continue to be part of the company's strategy, says Nauen. He declines to reveal Siemens' projections for its wind turbine sales in 2010, but confirms that the order book is full.