Vestas Wind Systems A/S , the world's largest wind turbine manufacturer, said Thursday it will shed more than 2,300 jobs or 10% of its work force, close one of its 26 factories, and reshuffle senior management in a cost-cutting plan that fell short of wide-reaching changes investors think may be necessary to guarantee the company's long-term future.
Vestas also warned Thursday that if U.S. lawmakers fail to extend a renewable-energy subsidy, known as the production tax credit, which expires by the end of 2012, it could lead to the layoff of an additional 1,600 employees in the U.S. Vestas will start preparing for a possible scale-down of U.S. operations later in 2012, it said.
Reiterating a target of €150 million ($190.6 million) in cost savings by the end of 2012, Vestas has started to lay off an expected 2,335 employees, mainly administrative staff, from its global work force of 22,362. The job cuts include some 1,300 redundancies in home-market Denmark, Vestas said.
The company's management shake-up involves the departure of its head of research and development and the reassignment of its chief financial officer after cost overruns in the fourth quarter contributed to two profit warnings in less than three months.
"The challenges we have faced in the fourth quarter of 2011 have given us a credibility problem," Vestas Chief Executive Ditlev Engel said in a statement.
"It is not undeserved. We have to work our way out of this situation and the only way we can do that is by proving that we will come out stronger after the elimination race which is currently taking place within the renewable energy sector," Mr. Engel said.
Since late October, Vestas has lowered its 2011 sales guidance by €1 billion, to €6 billion, and its earnings before interest and tax, or EBIT, margin target to zero from 7%. It also scrapped its medium-term target of sales to reach €15 billion by 2015.
Vestas is grappling with a deteriorating market for wind turbines as extra supply, particularly from China, has put downward pressure on prices while pressure on government finances has put wind-energy subsidies at risk in Europe and the U.S.
Initial market reaction to Vestas' revamp plans was harsh. In the European morning, Vestas' shares were down 5.2% at 59.7 Danish kroner.
"We believe the quantification of potential U.S. savings (1,600 employees) is positive, but did not include timing," said Martin Prozesky, an analyst at Sanford C. Bernstein. "This lack of a U.S. action is disappointing. The company needs to restructure there, irrespective of the (production tax) outcome, and has missed an important chance to do so," Mr. Prozesky said in a research note.
In the changes at head office, Vestas said it is expanding its executive board to six members from two with managers responsible for manufacturing, sales, turbines, and services reporting directly to the CEO. Deputy Chief Executive Officer Henrik Noerremark will be responsible for manufacturing, while the company will start looking for his replacement externally in his other role as CFO.
Four senior managers have lost their jobs in the reshuffle, including technology chief Finn Stroem Madsen. The Jan. 3 profit warning stemmed in part from €100 million in extra costs, of which €70 million related to budget overruns in the development of Vestas' new V112-3MW turbine. Vestas Chairman Bent Carlsen said last week the board was disappointed with that Vestas' accounting department had taken so long to recognize the budget overruns and inform top management.
read more: Olympus Wealth Management
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