Wider loss piles pressure on Vestas boss

Shares in the Danish firm dropped as much as 13 percent on Wednesday as analysts warned the group was heading towards the lower end of its financial forecast ranges for the full year.

“Everything is starting to point towards the bottom end of the guidance and therefore nil earnings this year,” Alm. Brand analyst Michael Friis Jorgensen said.

Once a darling of investors, the wind power industry - like its sister solar power sector - has been hit by overcapacity, rising costs and cutbacks in support for renewable energy by governments trying to plug deficits.

German engineering powerhouse Siemens slashed its full-year profit forecast last month after incurring a big charge related to delayed wind power projects.

Vestas’ credibility was hurt by two profit warnings in just three months - at the end of October and again in early January - which led to a management overhaul, including the resignation of its chief financial officer and a change of chairman.

Chief executive Ditlev Engel clung on, but is under pressure to deliver a promised turnaround.

“There’s no question Q1 was disappointing in terms of revenues and earnings,” Engel said in a conference call, adding revenues were hit both by customers not being ready to take deliveries and the company not being ready to make some.

He declined to comment on whether the weak quarter pointed to 2012 results towards the low end of guidance.

The group said it still expected its 2012 margin on earnings before interest and tax (EBIT) to be in a range of 0-4 percent and revenues of 6.5 billion to 8.0 billion euros, as forecast in February. It also expects shipments of turbines to reach about 7,000 megawatts in 2012, up about 40 percent from 2011.

CLOUDS AHEAD

Vestas’s first-quarter loss before interest and tax widened to 245 million euros ($324 million) from 69 million a year earlier. That fell below all estimates in a Reuters poll of analysts ranging from a loss of 125 million euros to a profit of 45 million..

Revenues rose to 1.11 billion euros from 1.06 billion a year earlier, also undershooting all forecasts in the poll.

As well as sluggish deliveries, the results were hit by the high cost of new technology, and provisions for gearbox problems affecting the V90 3.0 MW turbine.

High production costs on the V112 turbine hurt margins too. Engel said efforts to reduce those costs had not had any impact in the quarter, but would have an effect over the year.

Sydbank Analyst Jacob Pedersen said he was worried it would take well into 2013 before costs of the V112 turbine would be reduced enough to help earnings meaningfully.

“On the costs side, this does not bode well,” he said.

The looming expiry of a U.S. tax credit for renewable energy investment at the end of this year is another cloud over 2013, and Vestas said on Wednesday it would decide in the third quarter on the future of its U.S. operations.

When it announced plans in January to cut 2,335 jobs, Vestas also said it could need to make a further 1,600 layoffs at its U.S. units if the tax credit is not renewed.

Vestas said the announced job cuts would take its workforce down to about 20,400 by year-end, yielding cost reductions of more than 150 million euros with full effect from the end of this year in line with earlier statements.

At 1340 GMT, Vestas shares, which have slumped 72 percent in a year, were down 7.2 percent at 47.33 Danish crowns.

Vestas said it had slowed down development of its giant V164-7.0 MW offshore turbine to align it with the market outlook and now expected the prototype to be installed in Denmark in 2014, instead of an earlier plan to have it in place in 2013.

“Vestas has received inquiries from potential partners on the further development of the V164-7.0 MW turbine,” Vestas said. Engel declined to identify the interested parties.

Barclay’s analyst Rupesh Madlani said he saw tangible benefits to the company from lowering fixed costs further and reducing R&D costs for the V164 turbine to accelerate a return to profitability. “Taking these steps will help to re-establish their credibility with the investment community.”