Manufacturing footprint, outsourcing and cost out by Jean-Marc Lechêne, COO

Agenda

1. Personal background
2. New Manufacturing and Global Sourcing setup in place
3. Key priorities and achievements

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Introducing your speaker
Jean-Marc Lechêne

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Executive Vice President of Manufacturing and
Global Sourcing (COO).

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Member of Vestas’ Executive Management team. •

Joined Vestas in July 2012.

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MBA from INSEAD and Master’s degree from
École des Mines de Paris.

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15 years of experience managing multi billion business units with Lafarge and Michelin in
China, North America and Europe.

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Live in Denmark with my wife.

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What I bring to the table
Past experience

Today´s challenges

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Major cost reduction and restructuring programs in global companies. •

Implementing a lean, flexible and asset light production setup without compromising safety and quality.

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General management in process and manufacturing industries.

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Eliminating unnecessary costs and complexity out of products and the whole value chain.

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Strategist and doer: Delivering change to the bottom line.

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Reinforcing the alignment between
Sales, R&D, Manufacturing,
Sourcing and Service.

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Key priorities
Shipment from factories
GW

1. 5 GW shipment run rate in 2013

6.3

2. Product cost out

-21%

5.0

3. Identification of outsourcing opportunities
4. Global sourcing

2012E

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2013E

New Manufacturing and Global Sourcing setup in place
A streamlined organisation

Manufacturing and
Global Sourcing

Global Sourcing

Quality

Supply Chain

Finance

PEX

People & Culture

Blades

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Assembly

Controls &
Generators

Components

A leaner Manufacturing organisation
Reductions in number of employees

Hourly paid employees in Manufacturing
Number of employees

Salaried employees in Manufacturing
Number of employees

-8%
-34%

2011 FY

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2012 end Sep.

2011 FY

2012 end Sep.

A leaner Manufacturing organisation
Implemented adjustments

•

13 June 2012

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Closure factory in Hohhot (CH)

25 June 2012

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Reduction of manufacturing work force at tower factory in Pueblo, Colorado (US)

13 August 2012

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Reduction of manufacturing work force at nacelle assembly in Brighton, Colorado (US)

20 August 2012

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Cease of production at the controls factory in Ólvega (ES)

1 October 2012

•

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Sale of tower factory in Varde (DK)

Reduction of production capacity at the blade factory in Damiel (ES)

1 October 2012

Vestas’ capital markets day 2012

North America highlights

The challenge
• US market uncertainties*
• Sustained activities in Canada and
Mexico
• Lay-off costs
• Rehire, training and ramp-up costs
• Mouth-balled plant costs
• Logistics costs

Ongoing evaluation of and decision on our manufacturing footprint

* On 2 August 2012, the Senate Finance Committee approved “The Family and Business Tax Cut Certainty Act of 2012” bill. The bill includes a one-year extension of the PTC. In addition, the bill includes a five-per cent “under construction” threshold for projects that begin in 2013. The final bipartisan vote in support of reporting the bill was 19-5.
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Vestas’ capital markets day 2012

Product cost out

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Multi-functional teams (R&D, Manufacturing, Sourcing)

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Best selling 2 MW and 3 MW platforms

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Scope: Bill of Material (BOM)

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Many projects completed

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EUR 30m EBIT impact in late 2012

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Significantly larger impact in 2013

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Identification of outsourcing opportunities

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Many parameters in the economic equation:
Sales proceeds
Supply agreements (volume, price, quality, warranties, etc.)
Direct savings
Indirect savings
Supplier quality management

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Various forms of divestment considerations

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In parallel, commercial discussions with external customers to increase utilisation
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E.g. the US duties imposed on towers imported from China and Vietnam increases the competitiveness of Vestas’ tower factory in Colorado, USA.

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A new way of working with our suppliers
Fewer suppliers, but deeper relationships

Objective
• To eliminate any unnecessary costs from products and the whole activity chain

How
• Increased supplier involvement in development
• More systems, less parts
• More outsourcing: o Production o Value adding services
Consequence
• A more strategic win-win relationship
• Fewer suppliers
• Higher expectations in terms of accountability

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Summary
Manufacturing and Global Sourcing

1
2
3

We are adjusting our production capacity to the lower level of activity expected next year and we evaluate our manufacturing footprint accordingly.

We have a leaner structure that increases flexibility, transparency and agility, and which is more cost efficient.

We are on track in taking costs out of our products. 13 Vestas’ capital markets day 2012

Thank you for your attention

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Disclaimer and cautionary statement
This presentation contains forward-looking statements concerning Vestas' financial condition, results of operations and business. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements.
Forward-looking statements include, among other things, statements concerning Vestas' potential exposure to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. There are a number of factors that could affect Vestas' future operations and could cause
Vestas' results to differ materially from those expressed in the forward-looking statements included in this presentation, including (without limitation): (a) changes in demand for Vestas' products; (b) currency and interest rate fluctuations; (c) loss of market share and industry competition; (d) environmental and physical risks; (e) legislative, fiscal and regulatory developments, including changes in tax or accounting policies; (f) economic and financial market conditions in various countries and regions; (g) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, and delays or advancements in the approval of projects; (h) ability to enforce patents; (i) product development risks; (j) cost of commodities; (k) customer credit risks; (l) supply of components from suppliers and vendors; and (m) customer readiness and ability to accept delivery and installation of products and transfer of risk.
All forward-looking statements contained in this presentation are expressly qualified by the cautionary statements contained or referenced to in this statement. Undue reliance should not be placed on forward-looking statements. Additional factors that may affect future results are contained in Vestas' annual report for the year ended 31 December 2011 (available at vestas.com/investor) and these factors also should be considered. Each forward-looking statement speaks only as of the date of this presentation. Vestas does not undertake any obligation to publicly update or revise any forward-looking statement as a result of new information or future events others than required by Danish law. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this presentation.
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