Vestas is moving dangerously close to the edge

The crisis in Vestas is now so deep that the group existing only because of their banks want the too. According to a local Danish newspaper Jyllandsposten has Vestas has signed an agreement with banks to ensure that the company has enough money to continue operations. Otherwise they would have to close down operation.

The information has been disclosed in an interim financial statement for the second quarter of 2012.Which follows several years of poor financial performance and inability to change its strategy when the financial crisis hit in 2008.

The situation is now that Vestas has been unable to live up to the loan agreements made with its bank connections a significant step down from just a few years ago when the company was one of the fastest growing companies in Denmark.

Danger in the horizon

“Despite this, financial covenants testing is affected by the disappointing results realised by Vestas in the second half year of 2011 and the first quarter of 2012, which mainly related to the cost overruns in relation to the introduction of new technology” says the statement from Vestas to add: “Vestas has therefore agreed with its lenders to defer the half-year 2012 testing of the financial covenants contained in Vestas’ banking facilities and the lenders have allowed drawings, which in the opinion of Vestas are sufficient for the continued operation of Vestas on usual terms since the company expects to test on normal terms in the future.

According to Frank Jensen from the Danish Stock Analysis information that Jyllandsposten talked to is;

“The fact that banks are easing the requirements shows that the Vestas simply can not live up to them. There is only one explanation, and it is that they do not get the money in the Treasury, as required,” said Frank Jensen epn.dk.

This should be seen in the light that Vestas lost 338 million. euro in the first quarter and during the first two quarters the total is now nearing a total of 633 million euros.

Deficit of despite good figures for renevue

Revenue increased to 1.6 million. Euro. and is increase from 931 million. euros from the same quarter last year. However, the increased revenue is not impressive in the light that it bottom line showed a deficit of 8 million. euros after tax, compared with a profit of 55 million. euro in the second quarter of 2011.

Vestas considers this to be a temporary issue and in the light of the company’s positive results in the second quarter of 2012 combined with the large backlog of firm and unconditional orders, Vestas expects to meet the financial covenants contained in its current banking facilities in the near-term future.

With this in mind it becomes increasingly difficult to believe that Vestas will be able to live up to its financial commitment even after massive layoffs and changes on board level.

Vestas is about to fail yet again

Vestas wind turbine, Dithmarschen.

Windmill

The CEO Ditlev Engel of Vestas has yet again failed to meet the targets he and his management team have set for the company. While Vestas made the target of securing orders for over 7000 MW it failed to control costs in other parts of the company.

The Wind turbine manufacturer has once again disappointed investors with a noticeable downward adjustment because of delays and excessive extra costs compared to planned.

The revision of expected earnings of 255 million. euro to around zero enforces the sentiment among Vestas investors and analysts that there are management issues at Veatsas. Ditlev Engel acknowledges flatly that it is not good enough. “It is the second time within a short time that the introduction of new technology creates problems. It is obviously not good enough,” he says to epn a Danish business newspaper.

Basically this means that the Vestas stock is about to take another big hit within the next few days. In the past 52 weeks the stick has lost 60% of its value moving from a high of 232 down to 69 kr per share. And with the latest proclamation there is no reason to think that it will not fall even further.

According to Vestas are the problems associated with new technology for their V112-3.0 MW mill. and higher than expected costs of production. This should be seen in light that just a few months ago the company fired 3000 employees in Denmark.

Time for leadership change at Vestas

Windmill 02

Vestas Windmill

The board and management of Vestas Windsystems the biggest windmill producer in the world need to take a real hard look at themselves and how they conduct their business.

For to long the board have clinched to the hope that their CEO, Ditlev Engel, would have some sort of grip on the realities he and the company is facing. Year after year, quarter after quarter he has led the people who have put their trust in his statement down.

By being to optimistic he has again and again showed that he is unable to set realistic targets and even when nobody else has any doubt, which way the market is going. Vestas keep on insisting on unrealistic targets. Take for example the target of firm and unconditional orders for 7000-8000 MW and an EBIT margin of 7%. But until date the intake is only around 5200 MW very far from the and when the average announced intake is only around 80MW per order it is hard to imagine that the company will reach its targets in 2011. The investors have already taken the necessary steps and have punished the stock so that the change in stock price from last year is -58%. With the fall in the last 6 months of 53% it is clear that investors wants to see real change especially when it comes to realistic communication by management.

Investors like to know what they are buying and at the moment they do not trust the communication coming from Veatsa and when a company have lost the trust of their investors it is a true sign that change have to happen and happen fast. For the past three or four years there have been hopes that Ditlev Engel would start to deliver as he promised and time and time again he has been unable. I do not think that it is a loss of confidence in the product or the way that Vesats have put their business model together. Rather investors do not believe a word that Ditlev Engel is speaking and that is a real problem for the company as a whole.

As I see it is Vestas at the moment really undervalued and would be a good target for a takeover for a smaller windmill producer that could put in effective management.

The board need to step in and find a replacement that can build confidence with the market there is CEOs out there who have the necessary experience and competencies to bring Vestas back on track.

Vestas from the air

I have been on one-week tour of the western part of Denmark and took the opportunity to have a view of Vestas facilities seen from the air. Among the sites were the 5 MW giant mill that will is to supplemented by a 7 MW mill later this or next year.

Vestas logisticsThe Vestas shipping facilities at Ringkøbing in western Jylland. Looks quite busy on the docks which is good for my portfolio.
wind millSecond picture shows the 5 MW mill in action. Not the best picture but it is quite difficult to hold the camera steady while you are flying a small plane.
Vestas windmill farm

I tried to capture as much of the windmill farm outside the factory however my objective could only get part of the huge complex.
windmill factory
This is the plant itself. From the air it looked fairly busy so it could be that the value of the company measured in the current stock price is somewhat under the mark.