Vestas Wind System Risk Analysis

1. INTRODUCTION

Vestas Wind Systems A/S was founded in 1945 by Peder Hansen, and is the largest company that operates actively within the wind industry. The company engages in manufacture, development, sale, marketing and maintenance of wind power systems. Vestas generates most of its revenue through the sale of wind turbines and systems, having installed more than 46,000 turbines in sixty six countries across six continents, with 90 million MW of power generated annually. As of 2011, Vestas’s revenue comes mainly from Europe (52%), Africa (36%) and Asia (12%). The international presence of the company in the market is reflected by its 32 subsidiaries and 12 production facilities across the world .

In Fiscal Year ended 2011, Vestas experienced a net operating loss of 4 million Euro dollars. This was mainly due to operational risks such as delayed production shipments and unfavourable weather. Given the current financial position of Vestas, the company’s main financial objectives are to hedge against any financial risk exposures, but more importantly focus and improve on their core business model. Despite Vestas facing a handful of risk types due to the nature of its business, only (1) foreign exchange risk and (2) interest rate risks will be analyzed in detail in this report. This is because Vestas core business involves international dealings that have resulted in high exposure to foreign exchange rates fluctuations. In addition, Vestas leveraged operations, coupled with world interest rate fluctuations, have made interest rate risk relatively significant as compared to other risks. The following sections of the report will analyze the current risk exposures and strategies adopted by Vestas, as well as provide recommendations on new strategies Vestas may consider adopting.

2. FOREIGN EXCHANGE RISK

2.1 Exposure to FX Risk

The company has two main exposures to the fluctuation of foreign exchange risk, in particular Euro dollars. The first exposure arises...