Vestas CEO: we have a ‘credibility problem’ 

On the heels of its lackluster financial forecasts and revised financial earnings, Danish wind turbine giant Vestas has announced a massive wave of layoffs and a major corporate restructuring designed to protect the company from further damage.

The news was expected, and some analysts had speculated that the company’s CEO, Ditlev Engel, would be ousted from his top spot. Engel will remain at the helm, but the company will lay off 2,335 employees globally – Vestas’ third round of layoffs in just three years. Most of these eliminated positions will be in Denmark and the rest of Europe; however, 182 U.S. employees will get cut as the company consolidates support functions across its factories.

These measures, the company says, will reduce its fixed costs by more than 150 million euros.

In addition, Vestas warns that if the production tax credit is not extended, the company will lay off another 1,600 employees, mostly in the U.S.

“The United States is a very important market for us,” Engel says. “And we’re not so concerned about the year 2012, but we are much more concerned about the year 2013 – and in particular, in North America, because the production tax credit expires at the end of this year. If it’s not renewed, we have to prepare ourselves for a significant drop of the market in the U.S.”

In turn, Vestas has restructured to prepare for the worst-case scenario. The company will divide its business into two revenue streams: turbines and services. Formerly, these functions were grouped together under the Technology R&D division.

A new unit – Global Solutions and Services – has been created to focus on developing and supporting the delivery of pre-sales services, after-market services, supervisory control and data acquisition systems, wind and site services, and spare parts. This new division will also develop new technology to integrate wind power onto the grid.

“We are still focusing very much on the turbines, but also we would like to make sure that our service activities are being further developed,” Engel says. “And the services, by their nature, are a more stable business. It’s less capital-intensive.”

The restructuring also expands the two-member executive team to six members: Engel, who will continue as president and CEO, and division heads for each of the following units: Manufacturing, Turbines, Global Solutions and Services, Finance, and Sales.

In addition, the production units Towers, Control Systems, and Nacelles will be consolidated into a new unit called Nacelles and Components. This unit, together with the Blades unit, will make up the Manufacturing division, which will be headed by the company’s chief operating officer, Henrik Norremark, who will also serve as acting chief financial officer until a replacement is found.

As a result of the restructuring, the company will also eliminate the following executives: Anders Soe-Jensen, president of Vestas Offshore, Denmark; Bjarne Ravn Sorensen, president of Vestas Control Systems, Denmark; Finn Strom Madsen, president of Vestas Technology R&D, Denmark; and Peter Wenzel Kruse, senior vice president of Group Communications.

Anders Vedel, who currently serves as senior vice president of plant operations for the Technology R&D division, will lead the Turbines unit. He will also head the new Global Solutions and Services unit on an interim basis until a replacement is found.

In addition, Juan Araluce, who is currently president of Vestas Mediterranean, will become executive vice president of the company’s Sales division.

Looking toward the future
Engel acknowledges that despite Vestas’ success as the largest global provider of wind turbines, the company faces a battle to regain the market’s trust.

“I can certainly understand if employees, as well as people outside Vestas, consider us to be in a state of crisis,” he says. “The challenges we have faced in the fourth quarter of 2011 have given us a credibility problem. It is not undeserved.”

However, beyond the corporate restructuring lies a wider vision for Vestas’ long-term plan. In addition to beefing up its services business, the company sees big potential in the offshore sector. Among its plans for the coming year are the development of its V164 offshore platform – a 7 MW machine that will stand 443 feet tall and have a rotor diameter of 164 meters.

The cost savings incurred by the corporate restructuring will allow Vestas to focus more on product development and implementation, which had been challenges over the past few years, the company says.

Even with the substantial changes to the organization, however, Vestas still remains a victim of an uncertain market.

“We are now preparing Vestas for the situation where one of our largest single markets – the USA – may be facing a tough 2013,” Engel says. “This will have a huge impact on our business, if we do not act now. The wind turbine market has been quite volatile over the last number of years, and we need to make sure that Vestas is in a position where we are not so exposed to these big ups and downs.”