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CORRECTED-UPDATE 2-Vestas raises 2014 profit margin forecast as turnaround takes hold
August 20, 2014 / 7:31 AM / 3 years ago

CORRECTED-UPDATE 2-Vestas raises 2014 profit margin forecast as turnaround takes hold

3 Min Read

(Corrects headline and first paragraph to show company raised profit margin forecast, not profit forecast)

* Q2 earnings before special items 104 mln euros vs f'cast 63 mln

* Orders rise to 1,932 megawatt vs forecast 1,648

* Vestas is back to stability - CEO

* Sees 2014 op profit margin pre-special items at minimum 6 pct

By Shida Chayesteh

COPENHAGEN, Aug 20 (Reuters) - Danish wind turbine maker Vestas Wind Systems raised its full-year profit margin forecast after strong quarterly earnings, signalling its new management's turnaround strategy is working.

Chief Executive Anders Runevad was brought in a year ago after the firm issued a string of profit warnings. He replaced Ditlev Engel, who had struggled to turn around Vestas as the wind power industry was hit by overcapacity, falling state subsidies and fierce competition.

The new boss has cut production costs and focused on winning bigger contracts.

The company said on Wednesday that it expected its full-year operating profit margin before special items to increase to a minimum of 6 percent, from 3.5 percent in 2013. Its previous guidance was for a minimum of 5 percent.

It raised the guidance after reporting a big jump in second-quarter earnings before special items - to 104 million euros ($138 million) from 12 million euros in the same period a year ago. The figure easily surpassed analysts' expectations of 63 million euros.

Orders rose to 1,932 megawatt (MW), an increase of 18 percent compared with the same period last year.

"We have improved EBIT margins in this quarter almost nine-fold. We're back to stability. On the profitability side, we see very good progress," CEO Runevad told Reuters.

A push by Chinese rivals such as Goldwind and United Power to expand beyond a saturated home market has led to fierce competition for new business, forcing established players such as Vestas, U.S. giant General Electric, Spain's Gamesa and Germany's Siemens to raise their game.

Vestas has shed a quarter of its workforce - more than 5,000 jobs - closed plants and sold unprofitable businesses in a far-reaching restructuring since 2011.

But analysts say it was slower to react to the downturn in the market than some of its rivals, leaving it with many expensive but empty factories in 2011 and 2012.

"The (second-quarter) result is a lot better than expected and it is due to a gross margin of 19 percent," said Jacob Pedersen, analyst at Sydbank. "A gross margin of 19 is unusual for Vestas ... This is exactly what we want to see from Vestas."

Vestas maintained its 2014 revenue forecast of at least 6 billion euros. It had revenue of 6.1 billion euros last year.

The company's share price has risen over 70 percent this year, after a five-fold increase in 2013.

1 US dollar = 0.7517 euro Additional reporting by Sabina Zawadzki; Editing by David Holmes and Pravin Char

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