Vestas output

Business Focus: Vestas still blowing in the wind

A leading wind turbine group struggles with turbulent markets, while a Chinese PC maker finds more solid ground.

At a time of rising demand for renewables technology, the world’s biggest wind turbine maker is still struggling to hold its position on the global stage. Buffeted by competition from China and by the unsettled regulatory climate, Vestas of Denmark has been looking to the Japanese giant Mitsubishi Heavy Industries to help provide the stability it needs. Partnership talks between the two were disclosed in September.

It’s been a turbulent year for Vestas, which has a large R&D unit on the Isle of Wight. The company has issued two profit warnings in the past 12 months and in August announced plans to shed 1,400 jobs on top of a previously announced cut of around 2,300 posts. It did not say where the new redundancies would be made. In June the company abandoned plans to build a manufacturing base in Britain, at Sheerness in Kent.

Some leading analysts blame the company’s troubles not just on the current economic and regulatory climate but on its over-expansion in recent years. “In the past five years they have expanded very aggressively and have not shown any willingness to cut back on those plans,” commented DNB Markets in Norway. “That has been a major contributor to the negative cash outflow and left the company with too much capacity.”

The company recently reduced its current-year sales forecast from 6.3GW worth of turbines to 5GW. Its chief executive Ditlev Engels conceded that “2013, as it looks today, is probably going to be the toughest year that the wind industry has seen for a number of years”.

But Vestas’s woes are far from being just a matter of allegedly inadequate financial controls (which this year appeared to claim the scalps of the chairman and chief financial officer, who left their posts). The company says that uncertainty surrounding the state of government subsidies for wind power means that some its customers are adopting a “wait-and-see” approach.

In other words, customers will be sitting on their hands to see whether the public finance will fall away. After months of delay, energy ministers in the UK finally confirmed a 10 per cent cut in subsidies for onshore wind projects - much smaller than the 25 per cent that the Treasury was reportedly seeking. But at the same time the government said it planned to further review this decision during this year, a move that could mean further cuts in 2014. No let-up in the uncertainty, then.

Whatever the progress of the talks with Mitsubishi Heavy, some analysts believe that this process could just be a prelude to an outbreak of full-scale takeover attempts by Chinese rivals or other corporations. Danish newspapers reported earlier this year that the two largest Chinese rivals, Sinovel Wind and Xinjiang Goldwind Science & Technology, had discussed a potential bid, although this was not confirmed. But by the time you read this, Vestas could be heading for - or possibly even under - new ownership. Whatever the outcome, the sector will continue to be buffeted by commercial and regulatory turbulence.

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