By Richard Milne, Nordic Correspondent
The seeds of Ditlev Engel’s downfall were sown as the global financial
crisis started
Until Wednesday, Ditlev Engel was the last man standing at Vestas.
Chief executive of the Danish wind turbine maker since 2005, he had in the
past three years presided over four profit warnings and two big investor
lawsuits against the company.
Over this period, Vestas has got rid of a chairman, two chief financial
officers and a deputy chairman. Its share price fell 96 per cent from its
2008 peak to its trough last year.
Now the luck has run out for Mr Engel, who has been ousted as chief
executive and replaced with former Ericsson executive Anders Runevad.
Bert Nordberg, Vestas chairman for the past year and very much the new
power in the company, said: We feel that after eight and a half years we
are looking for a tweak of the culture and more focus on profitability, and
a future without surprises.
The last part is crucial after missteps under Mr Engels watch destroyed
investor confidence in Vestas. There are a lot of big international
investors who got burnt in Vestas and have said they will not come back
with him at the helm, a London-based analyst said before his removal.
Michael Friis Jrgensen, analyst at Alm Brand Markets in Copenhagen, was
slightly kinder, noting that Mr Engel had built Vestas into, at one stage,
the worlds largest manufacturer of wind turbines. It looks like Ditlev was
better at building up companies than at looking at the internal processes
of the company, he added, however.
The seeds of Mr Engels downfall were sown as the global financial crisis
started. Heading into 2008, Vestas had 15,305 workers. It ended 2010 with
23,252.
Just as the entire western world went into recession and cash-strapped
governments started to ease subsidies for renewable energy, Vestas pushed
ahead with a big expansion. It opened its first US factory in 2008 and a
year later announced plans to hire 5,000 new workers in China and the US.
Shortly afterwards the first doubts surfaced about how long US subsidies
for wind would last.
There is no doubt he was way too aggressive, says Mr Jrgensen. Two to three
years ago he was still running full steam. We were wondering: do you really
want to use this money to build up in China?
Vestas was soon heading for financial trouble. In 2010 it issued its first
warning on profits and revenues. An accounting change made investors
nervous, and two recent lawsuits argue that it was introduced to avoid the
need for another warning something Vestas denies.
The ill-timed expansion meant Vestas was suffering even more than its wind
industry rivals, under pressure from cheap Chinese competition and
dwindling subsidies. Two further profit warnings at the end of 2011 and
start of 2012 shattered any remaining investor confidence in the Danish
group and soon the chairman and finance director had paid with their jobs.
Mr Nordberg set about restoring the company to health, recruiting a new
finance director and Jean-Marc Lechne, an experienced French restructuring
expert, as chief operating officer. Mr Engel was retained but sidelined.
His strategy of pursuing revenue growth was abandoned. In its place came a
focus on cash flow and profitability as well as lots of outsourcing.
Successive restructuring plans meant a third of the workforce would lose
their jobs.
It was pretty clear that the COO and CFO were running the company at least
as much as the CEO. People have not been so nervous recently, Mr Jrgensen said.
A person close to Mr Nordberg calls the situation when the chairman started
early last year as really terrible. Vestas had to postpone its half-year
test of its financial covenants amid widespread speculation it was in
breach of them.
The person says that, despite the investor dissatisfaction, the seriousness
of the situation meant that Mr Engel could not be ousted then. For us it
was important that we werent in the most vulnerable situation. He was
looking for a time when the situation was more stable so you could give
more time to the new chief executive to settle in, he says.
Just as Vestass self-inflicted woes coincided with a downturn in the
industry, so its turnround is occurring at the same time as an uptick in
prospects for turbine manufacturers. President Barack Obamas decision
earlier this year to extend US turbine subsidies has boosted all wind
companies share prices, but few have risen as much as Vestass. Its shares
have quadrupled from their November lows.
Customers appear to be coming back to the company. Its order intake
collapsed last year as analysts fretted that its financial woes would cause
customers to shy away. If you are in that situation they were in a year ago
where you dont have stable finances then you have big difficulties in
making any kind of business, a person close to the company says. Customers
ask: will you still be here in a year?
In the second quarter, however, its order intake was the highest since the
final three months of 2011. Cash flow is now positive after it was losing
3.5m a day in the first half of 2012.
But Vestas is far from out of the woods. Anders Runevad, who will take over
as chief executive on September 1, may face slightly easier market
conditions than Mr Engel but the company still reported a bigger net loss
for the second quarter of this year than in the same period of 2012.
A Vestas director says: We still have not done all our homework. It is not
over yet.
Copyright The Financial Times Limited 2013.
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