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Vestas cuts jobs as prices, policy hit wind
October 26, 2010 / 7:36 AM / 7 years ago

Vestas cuts jobs as prices, policy hit wind

COPENHAGEN (Reuters) - Vestas, the world’s largest wind turbine maker, is to cut 3,000 jobs and shut plants as shrinking power demand and U.S. policy uncertainty turn a young industry into an ailing one.

<p>A worker inspects the surface of a blade for a wind-turbine at the Vestas Wind Technology company's factory, located in the northern Chinese city of Tianjin September 14, 2010. REUTERS/David Gray</p>

The Danish company posted a smaller-than-expected drop in third-quarter profits, but said markets in Europe would not live up to its expectations next year, sending its shares down steeply.

Analysts said indebted European governments are not investing in new energy projects, which has delayed recovery.

Vestas, the world’s No. 1 builder of wind turbines ahead of General Electric, said the 3,000 job cuts -- 13 percent of its workforce -- would allow it to close plants, mainly in its high-cost home country of Denmark.

Its shares were down 8.6 percent at 1218 GMT, underperforming a 1 percent fall in the FTSE cleantech energy index, after initially leaping by nearly 9 percent to a five-week high.

Alm. Brand analyst Michael Jorgensen, who kept a “buy” on the stock, said that the share price drop seemed excessive. “We think this share price is pricing in a very low margin (going forward).”

The wind energy equipment market has been dogged by persistent weakness since late 2008, against hopes for a rebound this year and after a drought in orders in 2009.

The financial crisis has damaged the entire power sector, hurting demand both from both residential and industrial users.

But in renewables, there are further dark clouds, with uncertainty over regulation especially hurting the U.S. industry. There are no federal U.S. targets for deployment of renewable energy. Those mandates were expected as part of a climate or energy bill which has been long stalled in the Senate.

In the EU there are binding renewable energy targets, for 2020, but the recession has made these easier to achieve, so there is less pressure on companies to invest in new capacity.

Banks including Barcap and HSBC this summer downgraded their estimates of global growth in the wind market this year.

GE rattled recovery hopes on October 15 when it posted a steeper-than-expected drop in revenue, partly because wind turbine sales fell 32 percent in the third quarter and wind orders were down 15 percent.

Spain’s Gamesa lowered its 2011 sales forecast on October 7 along with a forecast for its turbine margins to fall this year and next and recover in 2013.

And Vestas said on Tuesday the European markets had not recovered in line with its expectations.

“It’s governments and their financial problems (behind the weakness),” Alm. Brand’s Jorgensen said.

“Up to now they have said that price pressure has only come along with falling costs of input materials,” Jorgensen said. “Now that input costs are rising again and there is overcapacity and lack of demand, it can be hard to keep the same margins.”

Vestas, whose rivals also include Germany’s Siemens, India’s Suzlon and China’s Sinovel, also said component prices have risen, affecting profitability of new projects.

Activity picked up in the third quarter from very low levels in the first half that suffered from the lingering effects of the 2008-09 economic crisis.

Vestas’ earnings before interest and tax fell to 185 million euros ($259.7 million) in the three months to end-September from 244 million in the same quarter last year.

The result beat all forecasts in a Reuters poll of 17 analysts whose average estimate was for a drop to 114 million euros.

In August, Vestas posted surprise losses for the second quarter and lowered its full-year sales forecast to 6 billion euros, and its EBIT margin expectation to 5-6 percent from an earlier 10-11 percent, sending its shares tumbling.

Additional reporting by Shida Chayesteh, Mette Fraende and Anna Ringstrom in Copenhagen, Peter Dinkloh in Frankfurt and Gerard Wynn in London; Editing by Erica Billingham and Andrew Callus

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