* Vestas to stop production at Hohhot plant, cut jobs

June 25, 2012 by  
Filed under Green Energy News


Mon Jun 25, 2012 9:59am EDT

* Vestas to stop production at Hohhot plant, cut jobs

* Sees low demand for small turbines

* Analysts say winning back investor confidence will take
time

* Shares near year low

(Adds details, background, quotes, share price)

By Mette Fraende

COPENHAGEN, June 25 (Reuters) – Vestas, the world’s
biggest wind turbine manufacturer, is closing a factory in
China with the loss of up to 350 jobs, it said on Monday, just
three days after scrapping plans for a factory in Britain as
demand slides.

Once a darling of investors, the renewable energy sector is
struggling in the global economic slowdown as support for wind
power and other renewable sources has been hit by government
spending cuts and a downgrading of growth prospects.

Earlier this month, Vestas’ Chief Executive Ditlev Engel
said the group had to get accustomed to no longer operating in a
growth industry. He is under intense pressure to deliver a
promised turnaround and restore investors’ confidence, which
analysts say will take time.

The Danish company said on Monday that the closure of its
Hohhot factory in China, which makes small kilowatt turbines,
would result in 300-350 job cuts and generate annual savings of
10 million euros ($12.54 million).

That leaves it with about 2,600 employees in China, spread
across two production bases in Tianjin and Xuzhou and two
offices in Beijing and Shanghai.

The closure follows an announcement on Friday to drop plans
to build a factory in Britain to make large turbines that would
have created 2,000 direct and indirect jobs.

Vestas said it had not received a single order for the
V164-7.0 megawatt turbine that was meant to be built at the UK
site.

Its shares, which have collapsed from a historic high of
about 700 Danish crowns ($120) in 2008 before the global
financial crisis struck, were flat at 30.34 crowns at 1329 GMT.
They flirted with a year low of 29.03 crowns following the
announcement of the Chinese factory closure.

NO QUICK FIX

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

The difficulties stemming from cost overruns also led the
company in January to announce 2,335 job cuts and to say it
could be forced to cut a further 1,600 U.S. jobs if a tax credit
is not renewed by the year end.

The company employed 22,576 people globally at the end of
the first quarter.

“In order for one to start really believing in Vestas again,
they have to prove that they can make money,” said Nykredit
analyst Klaus Kehl.

“It is all very well that they are still the global leader
within wind energy, but if that does not generate money, it does
not matter,” Kehl said.

He said that neither this year nor next year look any easier
for the group as revenue would continue to fall and saw no
reason to start buying the stock.

Last month, Vestas reported a larger-than-expected loss for
the first quarter due to delayed deliveries and rising costs,
piling pressure on Engel and sending its shares sliding as much
as 13 percent.

It stood by its 2012 guidance for a margin on earnings
before interest and tax (EBIT) to be in a range of 0-4 percent
but analysts said it now looked like the group was heading
towards nil earnings this year.

The expiry of a U.S. tax credit for renewable energy at the
end of the year is another cloud looming over Vestas’
profitability.

Engel said earlier this month that the lapse of the U.S.
production tax credit (PTC) at the end of 2012 was likely to
lead to an 80 percent drop in the American wind turbine market
next year, which is in line with analysts’ views.

“There is an urgent need to reassess the end markets and
financial returns so the company achieves its cost of capital
across an economic cycle,” said Barclay’s analyst Rupesh
Madlani.

“This is likely to take time to demonstrate,” he said,
adding he believed the group would be able to achieve a
turnaround.
($1 = 0.7977 euros)
($1 = 5.9302 Danish crowns)

(Reporting by Mette Fraende; Editing by Erica Billingham)

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