Vestas ditches embattled CEO to restore investor confidence

COPENHAGEN Wed Aug 21, 2013 9:50am EDT

COPENHAGEN (Reuters) - Denmark's Vestas (VWS.CO) ousted Chief Executive Ditlev Engel on Wednesday in an attempt to win back investor confidence after a string of profit warnings and pending lawsuits from angry shareholders.

During Engel's eight years of service the group has been overtaken by General Electric (GE.N) as the world's biggest wind turbine manufacturer, has issued five profit warnings and in recent years has parted company with two chief financial officers and one chairman.

Anders Runevad, with nearly three decades of experience at Swedish telecoms equipment maker Ericsson (ERICb.ST), will replace Engel, who has struggled to turn around Vestas as the wind power industry was hit by overcapacity and falling state subsidies.

Though Engel's departure comes just as signs of a recovery are beginning to emerge, Alm Brand markets analyst Michael Friis Jorgensen said: "Large institutional investors have a good memory. Once they have been burned by management, they don't forget.

"Changing the top of the management will give investor confidence a fresh start."

Vestas also announced a smaller-than-expected fall in second-quarter earnings and raised its guidance on full-year cashflow - an area of particular concern for investors.

"We have taken a firm grip on the balance sheet and we feel now is the moment to change the CEO and get new leadership in the company," chairman Bert Nordberg said in a webcast.

"The reason for this leadership change is that we want to finalise the restructuring and we now want to go into stable, profitable growth."

PERFECT PARTNERS

Nordberg and his new CEO both worked at Ericsson as far back as the mid-1990s and cemented their relationship during Nordberg's tenure as head of mobile phone joint venture Sony Ericsson.

"He (Runevad) has a broadly good reputation," said Bengt Nordstrom, head of telecoms consultancy Northstream, adding that the two know each other "extremely well".

Alm Brand's Jorgensen believes that the link between the executives will be welcomed by investors.

"It brings reassurance that Nordberg's strategy will be carried out: to focus on earnings, earnings and earnings," he said. "The next step for the new CEO will be to try to gain market share in a competitive market that is seeing an increasing number of players."

In addition to the likes of U.S. giant General Electric, Spain's Gamesa (GAM.MC) and Germany's Siemens (SIEGn.DE), Runevad will have to see off Chinese rivals such as Goldwind 002202.SZ, United Power CNGUO.UL, Sinovel (601558.SS) and Ming Yang (MY.N) as they look to expand beyond their saturated domestic market.

Vestas shares jumped more than 11 percent in early trade and were up 6.1 percent at 0920 ET, against a 0.2 percent rise in the Copenhagen stock exchange's benchmark index .OMXC20CAP.

The share price has tripled since the start of the year, but is still down nearly 85 percent from its 2008 peak.

TURNAROUND

The company's restructuring plan has focused on job cuts, plant closures and an exit from unprofitable operations. It has also halted a number of research and development projects.

Vestas has shed 5,468 jobs since the end of 2011 and expects to cut at least 1,253 more to leave it with a maximum of 16,000 employees by the end of this year.

The measures appear to be starting to bear fruit. In May it posted a more than 50 percent drop in first-half operating losses, helped by lower costs and higher turbine prices.

The improvement, however, has been clouded by the investor lawsuits. Only last week Vestas received a claim from pressure group Deminor on behalf of 87 investors seeking damages totaling 80 million Danish crowns ($14.4 million), claiming that profit warnings should have been issued earlier.

The lawsuit is directed against Engel, former chairman Bent Erik Carlsen and former CFO Henrik Norremark. Current Chairman Nordberg said the legal issues had not influenced the board's decision to replace Engel.

Vestas posted second-quarter earnings before interest and tax (EBIT) down 33 percent to 12 million euros, from 18 million in the same period last year. The consensus estimate in a Reuters poll of analysts was 5.5 million euros.

It also raised its expectations for free cashflow this year of about 200 million euros, against earlier guidance of merely "positive" cashflow, and stood by its forecast for an underlying EBIT margin of at least 1 percent.

Chief Financial Officer Marika Fredriksson will assume the positions of acting group president and chief executive until Runevad takes over on September 1.

(Additional reporting by Stine Jacobsen and Teis Jensen in Copenhagen, Mia Shanley and Niklas Pollard in Stockholm; Editing by Niklas Pollard and David Goodman)

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