Vestas in talks with Mitsubishi over possible strategic alliance

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5 September 2012, Nuclear, Solar, Wind

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Vestas, the largest global manufacturer of wind turbines, has seen a fall in its share price of 94% in the last four years as profits have turned to huge losses after a period of overexpansion. Two profit warnings were posted in 2011 as the company fell E545m into debt, and the first half of 2012 has seen a negative cash flow of E633m, raising the level of debt to E1.15bn by the end of June 2012. At the same time, Vestas has been in talks with lenders to stave off a breach of its covenants.

Losses have been due to a massive overcapacity in the company and dwindling demand, as well as budget overruns and excessive costs in the development of a new 7MW offshore wind turbine. Demand is forecast to slow dramatically in 2013 and Vestas is laying off 3,700 workers this year, nearly one fifth of its employees, in an attempt to turn around its fortunes and to reduce the E3.5m it has been costing to run the business each day. With lowered forecasts for 2012 and 2013, even greater cuts may be needed if Vestas is to return to profit.

The engineering challenges of developing a 7MW offshore turbine are significantly greater than those involved with smaller capacity turbines as current materials are pushed to their design limitations. Mitsubishi Heavy has also been developing a 7MW turbine and while Vestas has been struggling to compete with Siemens and General Electric in the offshore market, the strategically good match with the Japanese company could provide the necessary capital and expertise to make the technological developments required for Vestas to play a significant role in the future European offshore wind market.

Vestas has had 63% of orders from Europe and Africa, 22% from the Americas, and 15% from Asia Pacific with a backlog of E9.6bn at the end of June 2012, which bodes well for future production. In Japan, the expansion of the offshore wind industry is being encouraged through feed-in tariffs that are higher than in Europe. Mitsubishi Heavy could benefit from the expertise of Vestas and expand within the Japanese market as well as gaining a strong position in Europe. However, Mitsubishi Heavy brings more to the table than Vestas and a 20% stake in Vestas could be seen as a wasted investment, while a full takeover of Vestas by the Japanese company cannot be ruled out if Mitsubishi is to gain from the talks.

Source: Datamonitor

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