Vestas Wind Systems A/S (VWS), the biggest wind-turbine maker, fell to a nine-year low in Copenhagen trading after saying the first-quarter loss almost doubled and it expects to spend more to repair faults in 376 machines.
The shares declined 5.6 percent to 48.15 kroner in Copenhagen trading, the lowest close since May 2003. They earlier sank as much as 13 percent, the most since Feb. 8.
Vestas is seeking to return to profit after reporting its first loss since 2005 last year. In January, it started a program to cut 10 percent of the workforce and save 150 million euros ($197 million) a year. The company needs “significant tightening,” said Dag Gunnar Andresen, who takes over as finance chief in August.
“We are disappointed by the scale of weakness in the first quarter,” Rupesh Madlani, an analyst at Barclays Capital in London, said in a note to investors. “We are also disappointed by the lack of more aggressive cost-cutting of its fixed-cost base, to improve full-year profitability, and we expect this to be a focus for the incoming CFO in the summer.”
The net loss worsened to 162 million euros in the quarter from 85 million euros a year earlier, Aarhus, Denmark-based Vestas said in a statement. That trailed the 56.8 million-euro average loss predicted in a survey of eight analysts. The margin on earnings before interest and tax widened to minus 22.2 percent compared with minus 6.5 percent.
“There’s no doubt the first quarter was disappointing,” Chief Executive Officer Ditlev Engel said in a phone interview. “There are three main reasons: too-high turbine costs, unexpected additional warranty provisions, and obviously we had anticipated more would be handed over to the clients in the first quarter. If that doesn’t happen, we cannot book any revenue.”
Vestas said on Jan. 12 it would cut 2,335 jobs, with 1,600 more at risk in the U.S. because of an expiring tax credit to the industry. Fewer than 150 jobs were cut in the first quarter, according to today’s statement. The head count was 22,576 on March 31 and a decision on the American jobs will be taken in the third quarter, it said.
Vestas “still expects the number of employees at year-end to be around 20,400,” the company said.
The manufacturer last week named Andresen, a former CFO of Vattenfall AB, to take up the post vacated by Henrik Norremark in February just before the company posted a 166 million-euro loss for 2011.
Sales, Shipments Rise
While profits and margins declined, sales rose to 1.1 billion euros in the first quarter from 1.06 billion euros and Vestas logged 1,269 megawatts of orders, boosting its order backlog to a record 10 billion euros at the end of March. Shipments advanced 47 percent to 931 megawatts.
Vestas said it was earmarking an additional 40 million euros to pay for extra maintenance, repair or replacement of malfunctioning bearings in the gearboxes of 376 of its V90 turbines, including 36 offshore machines. The gearboxes were supplied by ZF Wind Power Antwerpen NV, it said. Engel declined to say who made the bearings.
“We will pursue all available avenues with regard to compensation for this,” Engel said. The company said it will make warranty provisions of about 3 percent of revenue this year compared with previous guidance of less than 3 percent.
“The scope for an additional capital raise cannot be discounted through the year as future customers question the longer warranty commitments made by the company,” Barclays’s Madlani said.
The company issued profit warnings in October and January, citing production delays at a generator factory and higher-than- expected costs developing its V112 turbine.
“Our new technology is at this moment too expensive, and we know that,” Engel said in an interview on Bloomberg Television’s “On the Move” show. Engel also said Vestas is reducing the pace of development of its planned 7-megawatt V164 offshore turbine because of “uncertainty” in the market. The company has talked with potential partners to make the turbine, he said, declining to name them.
Vestas maintained full-year guidance for an Ebit margin of zero to 4 percent, revenue of 6.5 billion euros to 8 billion euros and about 7 gigawatts of shipments.
The company faced takeover speculation last month after the Danish newspaper Jyllands-Posten said Chinese turbine makers Sinovel Wind Group Co. (601558) and Xinjiang Goldwind Science & Technology Co. (2208) had spoken with Danish corporate finance bankers about possible bids. Engel declined to comment when asked if Vestas had received any offers.
“The wind-industry fundamentals are extremely tough and look likely to remain so until significant consolidation takes place,” Arnaud Brossard, an analyst at Exane BNP Paribas in Paris, said today in a note to investors. He maintained his underperform rating on the stock.
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