Vestas Restructuring May Cut Jobs While Keeping Engel as CEO

Vestas Restructuring May Cut Jobs While Keeping Engel as CEO
An employee selects a component for a wind turbine blade at the Vestas blade factory in Lem, Denmark. Photographer: Chris Ratcliffe/Bloomberg

Vestas Wind Systems A/S tomorrow plans to announce organizational changes that may cut thousands of jobs at the world’s biggest wind turbine maker while preserving the position of Chief Executive Officer Ditlev Engel.

As many as 3,000 of Vestas’s more than 23,250 employees may lose their posts, said Jacob Pedersen, an analyst at Sydbank A/S. Vestas, based in Aarhus, Denmark, said on Nov. 9 that it wants to become a “leaner” company by reducing annual fixed costs by 150 million euros ($192 million).

“They’ll probably cut 2,000 to 3,000 jobs, with a very large proportion of that in Denmark,” Pedersen said in a telephone interview from the Danish city of Aabenraa. “I don’t think there is even a question of getting rid of Ditlev Engel because he is very influential and very good at lobbying politicians.”

Engel, 47, is under pressure after twice slashing Vestas’s sales forecasts since October and abandoning a 2015 target for 15 billion euros of sales and a profit margin of 15 percent before interest and taxes. Chinese manufacturers led by Xinjiang Goldwind Science & Technology Co. and Sinovel Wind Group Co. have grabbed market share from Vestas, squeezing its margins.

A “significant change of the whole organization” will be announced tomorrow, according to a statement from Vestas on Jan. 3. It originally intended to announce the measures on Feb. 8, then brought forward the plan because it was making quicker progress on preparing the changes.

‘Something Dramatic’

The statement “certainly suggests something dramatic” though the “vague” wording makes the contents of the announcement hard to predict, said Sean McLoughlin, clean technology analyst in London at HSBC Holdings Plc.

Michael Holm, a spokesman for Vestas, declined to give details of the plan in advance of a statement due at 8:30 a.m. tomorrow Copenhagen time. Engel is scheduled to lead a press conference starting at 2 p.m.

Vestas shares have fallen more than 90 percent since peaking at 692 kroner ($119) in 2008, including a 0.4 percent drop to 60.9 kroner at 10:29 a.m. today in Copenhagen. Short sales, where investors bet on falling prices, have risen to a record. The shares yesterday gained 5 percent, rising for a third day after losing 21 percent of their value in the two days that followed the company’s latest profit warning, on Jan. 3 at the close of trading in Copenhagen.

Short Interest Climbs

Short positions of the shares rose to 18.6 percent on Jan. 6, the highest in a Data Explorers Inc. series that goes back to July 2006. Short sellers borrow stocks and sell them in the anticipation of profiting by repurchasing the securities later at a lower price.

In the latest downgrade, Vestas pared its revenue forecast for 2011 by 400 million euros to 6 billion euros after slashing 600 million euros from an earlier prediction of 7 billion euros on Oct. 30.

That’s sparked “anger” among shareholders though Engel “doesn’t seem to be at risk” because Chairman Bent Erik Carlsen has blamed the accounting department, according to Arnaud Brossard, an analyst in Paris at Exane BNP Paribas.

“Ditlev Engel will be the one announcing the ‘new organization’ so given that, it is very unlikely he will resign on Thursday,” said Julien Desmaretz, an analyst in Paris with Bryan, Garnier & Co. The analyst said job cuts are probable though he didn’t speculate how many, saying only that Europe may be the hardest-hit region.

‘Need to Know’

“Investors such as ourselves need to know that it has an appropriate cost structure against the backdrop of lower prices,” Charlie Thomas, fund manager of the Jupiter Ecology Fund, which owns Vestas shares, said by e-mail.

“The process for rebuilding confidence could take time and a change in the management team may be needed to deliver this,” Thomas said. “Our long-term thesis remains unchanged, Vestas is leader in its class in a sector that will grow over the longer term, it just needs to rise to the short term challenges in the market or face the consequences.”

Vestas may spell out measures that save “closer to 200 million euros,” said Patrik Setterberg, an analyst at Nordea Bank A/S in Copenhagen. “Probably a big chunk of this fixed cost will be saved on white-collar workers,” with Europe harder hit than the U.S., he said.

Jobs in the U.S., where Vestas has spent more than $1 billion building four plants in Colorado, may be spared in the announcement because of the strength of demand before tax credits supporting wind power expire at the end of 2012, said Maurice Rosenthal, an analyst at ING Groep NV in Brussels.

American Workers

U.S. job cuts now would be “premature,” said Sydbank’s Pedersen. Desmaretz said demand is likely to be high in the American market.

“There will be a rush to complete the wind projects by the year-end,” Desmaretz said. “Vestas will have to keep some employees there and at least keep its production capacity stable for 2012.”

Vestas has about 3,000 employees in the Americas, according to its 2010 annual report, which doesn’t break that figure down by country. About 900 work at plants making nacelles and blades in Brighton, Colorado.

Vestas has hired almost 700 people in the U.S. and Canada in the past 8 months, and has 150 job openings in its U.S. and Canadian sales unit, the company said yesterday in an e-mailed statement.

“I don’t think they would have invested over $300 million in Brighton and $1 billion in Colorado and then cut back,” Ray Gonzales, president of the city’s Brighton Economic Development Corp., said in a telephone interview.

Tax Credits

Engel said in November that U.S. sales may “fall off a cliff” unless the federal government extends tax credits supporting the industry beyond this year. The so-called production tax credit, or PTC, gives an incentive of 2.2 cents a kilowatt-hour of wind power.

“The potential PTC expiry has pulled forward a lot of demand to this year but future growth is in doubt,” said Simon Gottelier, a fund manager in London at Impax Asset Management Group Plc, which owns Vestas shares. “Without the PTC, there’s no real incentive for anyone to build more wind capacity after 2012.”

Because of that uncertainty, U.S. job cuts are possible later in the year, according to Rupesh Madlani, an analyst in London at Barclays Capital.

‘Fewer Business Units’

“We would only expect an announcement for cost reduction at their U.S. facilities toward the end of the year,” Madlani said in an e-mailed reply to questions. He expects Vestas tomorrow to “outline fewer business units in its organizational structure, reducing layers of management.”

Vestas may move more toward a regional structure rather than its current split into divisions for nacelles, blades and other components, Sydbank’s Pedersen said. “It should be possible for Vestas to produce less of the turbine and give some away to suppliers,” he said.

“There are two very critical components in a turbine: the control system and the blades,” Nordea Bank’s Setterberg said. “I believe Vestas will try to keep these components. Otherwise, there are many other parts of the turbines which could be outsourced, such as the towers, the generators and parts of the nacelle.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE