Vestas Wind Systems A/S, the world’s biggest wind turbine maker, said it will halt production at one factory and cut 2,335 jobs, or 10 percent of its staff, to become more competitive with Chinese suppliers.
The changes are aimed at saving more than 150 million euros ($191 million) by the end of 2012, the company based in Aarhus, Denmark, said today in a statement. Vestas said another 1,600 jobs in the U.S. are at risk as a tax credit supporting the industry expires at year-end.
Chief Executive Officer Ditlev Engel will keep his post after cutting sales forecasts twice since October. Three times in three years he’s pared the workforce as Sinovel Wind Group Co. and Xinjiang Goldwind Science & Technology Co. grabbed market share. Vestas also suffered from production delays at a generator factory and from downward pressure on turbine prices.
“The challenges we have faced in the fourth quarter of 2011 have given us a credibility problem,” Engel said in the statement. “I can certainly understand if employees as well as people outside Vestas consider us to be in a state of crisis.”
Vestas fell 7.1 percent to 58.50 kroner at the close of trading in Copenhagen, the most since Jan. 4, the day after the last profit warning. The stock has lost almost 92 percent of its value since peaking at 692 kroner in 2008.
Sentiment at ‘Lows’
“Some in the market were hoping for significant management changes and this hasn’t happened,” Charlie Thomas, a London-based fund manager of the Jupiter Ecology Fund, which owns Vestas shares, said by e-mail. “With shareholder sentiment at such lows, there was the potential to make a more significant transformation. This is missing in our view.”
Jacob Pedersen, an analyst at Sydbank A/S who correctly predicted the scale of the cuts, said in a phone interview from Aabenraa, Denmark, that some investors may have expected Engel to step down. He said Vestas “disappointed massively” with its latest earnings forecast cut on Jan. 3.
Engel, 47, later told reporters the company’s board had asked him to make today’s announcement, and that it would be “unnatural” to leave the company now.
“The right time to leave a company is not when it’s facing challenges and is in trouble,” Engel said at a news conference in Copenhagen broadcast on the company website. “Have I offered my resignation to the board? No. That’s because I don’t think it would be the right thing to do.”
At a news conference today in Copenhagen with European Commission President Jose Manuel Barroso, Danish Prime Minister Helle Thorning-Schmidt called the job losses an “enormous setback” to European Union efforts to promote green growth.
“This is a very, very sad day for Denmark as this is one of the things we think Denmark should be doing in the future,” Thorning-Schmidt said. “I still think this is the way forward, investing in new ways of doing things and new technologies, and despite this enormous setback, we’re on the right path.”
Engel also announced changes to management, with Chief Financial Officer Henrik Norremark named chief operating officer and deputy chief executive officer, and starting a search for a new finance director. Vestas will organize its business into five divisions and form a six-member executive team including Engel and Norremark, who will remain acting CFO until a replacement is found.
Those leaving the management team include Ander Soe-Jensen, head of offshore wind; Bjarne Ravn Soerensen, president of control systems; Finn Stroem Madsen, head of technology research and development; and communications chief Peter Kruse.
Juan Araluce becomes chief sales officer and Anders Vedel will be in charge of turbines. The new CFO and a new person to head a services division will complete the team, which comes into place on Feb. 1.
“We believe replacing the CFO to be a wise move,” Rupesh Madlani, an analyst in London at Barclays Capital, said in a note to investors. “The market had been disappointed over the last year at the lack of financial details and two profit warnings in a quarter from the company. We therefore view this change to be particularly positive.”
Vestas slashed 3,000 jobs in October 2010 and 1,900 in April 2009. After the latest round of cuts, its workforce will number about 20,400.
A total of 1,749 of the jobs to be lost will be in Europe, including 1,300 in Denmark, the statement said.
‘Risk’ to Knowledge
“The redundancies are happening in an industry which ought to experience progress due to the massive climate problems that both Denmark and the world are facing,” Frida Frost, who chairs the Danish Society of Engineers, which has 550 Vestas members, said in an e-mail. “We risk that knowledge and know-how about wind technology now disappears, and that is not what Denmark needs in the current economic situation.”
Danish Metal Workers Union chairman Thorkild E. Jensen said in a statement that the announcement creates “great uncertainty” in the Vestas work force and is a “hard blow” to those who’ll lose their jobs.
In the U.S., 182 workers will lose their jobs, and 404 in China and the rest of the world. Vestas will stop producing at its tower factory in Varde, western Denmark, the company said.
“Vestas has one of the highest costs of all its peers and will therefore have to take these painful steps in order to remain profitable in the future,” Justin Wu, a Hong Kong-based analyst with Bloomberg New Energy Finance, said in an e-mail. “Turbine manufacturing margins have plummeted while competition has become increasingly fierce.”
In the U.S., a further 1,600 jobs may be cut if lawmakers don’t extend the so-called production tax credit beyond 2012, Vestas’s chief said. A decision will be made no later than the fourth quarter, he said. The credit gives an incentive of 2.2 cents a kilowatt-hour of wind power.
“The expected layoffs are one of many steps that we now take in order to bring down costs,” Engel said. The changes are necessary “in order to prepare for a market with low growth and increased competition.”
Vestas has spent more than $1 billion building four plants in Colorado. About 900 work at plants making nacelles and blades in Brighton, Colorado. The company has hired almost 700 people in the U.S. and Canada the past eight months. Vestas said it will decide the size of the U.S. staff later this year.
“We are now preparing Vestas for the situation where one of our largest single markets, the U.S.A., may be facing a tough 2013,” Engel said. “This will have a huge impact on our business if we do not act now.”