IN DEPTH: Nordex bounces back

Closing factories in the world’s two largest wind-power markets — the US and China — doesn’t sound like a recipe for success, but for turbine manufacturer Nordex, the move has been a turning point in its fortunes.

Last year, after concentrating all its production in Rostock, northern Germany, the company re-entered the top ten of global turbine makers for the first time since 2010 (according to both BTM and MAKE Consulting). It also made a €10.1m ($13.6m) net profit — after worrying losses of €94.4m in 2012.

Such a production strategy might have caused bottlenecks for larger manufacturers that have to supply huge wind farms with hundreds of megawatts. But it works out just fine for the German company, which tends to cater for projects of around 50MW.

And while transport costs have inevitably risen, they remain fairly moderate, explains chief executive Jürgen Zeschky, because the company only ships nacelles, which are not as costly to transport as blades or towers.

“Blades and towers are bought by us globally anyway,” Zeschky tells Recharge. “We optimise our supply chain in a way that we use global suppliers in Asia, in Europe and in the Americas to supply these large components.”

The Rostock plant is now operating at almost 100% capacity, but Zeschky says Nordex could add another shift if justified by demand.

Concentrating production in one facility with high-capacity utilisation, instead of two or three partially used factories, has been instrumental in bringing Nordex back on track, says Sydbank analyst Jacob Pedersen.

“They should use their existing capacity to the extreme in the coming years in order to handle volume growth,” he says.

Zeschky, who has been chief executive since 2012, points out that closing manufacturing in a country doesn’t mean that the company won’t still sell turbines there.

“In the US, we just discontinued our production. [But] we are still active in the market,” Zeschky explains. “We still have a significant presence in the US [100-plus staff in sales, services and product management], and we are still winning projects in the US.”

For example, Nordex received an order for 16 of its 2.5MW N100 machines in April from Exelon Wind for the Four Mile Ridge project in Maryland.

“The only difference is, when we manufacture the sales, they come out of Rostock now and not out of an underutilised production [facility] in the US,” Zeschky says.

Exiting production in the complex Chinese market is also seen as a sensible move, as foreign OEMs continue to struggle there amid nationwide overcapacity and cut-price domestic competition.

“We are definitely looking at it as a good decision for our company not to be active in China,” says Zeschky. “[But] we are still winning a few projects in Asia.” For instance, Nordex has been highly successful in Pakistan, where it has already gained three firm 50MW orders as part of a 250MW conditional supply agreement with a local partner.

Being very selective about which markets to enter has also been key to Nordex’s turnaround.

The company scrutinises each potential market carefully before making a decision, taking into account its subsidies, political situation, grid access policy and the company’s competition.

“We are looking at the size of a market,” says Zeschky. “Can we reach a number one to three position?” In general, countries that require turnkey solutions or project-optimisation support are a better bet for Nordex than markets where the price of the turbine is the primary concern, Zeschky explains.

As well as Pakistan, Nordex has had success in South America, particularly in Uruguay, and it is also eyeing Chile, Central America, Mexico and Canada.

Nordex’s expansion plans in emerging markets is a good strategy, says Navigant research director Feng Zhao.

“Emerging markets will be really important,” he says. “They will be key for future growth. As long as they can get orders from emerging markets, they can do good business.”

One emerging market that Nordex will not be participating in is Brazil. To meet local-content requirements of the country’s national development bank, BNDES, Nordex would need to build a factory there, which would be incompatible with its current strategy of a lean production process.

“There are several competitors already active with their own factories in Brazil. So we don’t believe we need additional capacity,” Zeschky says, adding that the price for wind power in Brazil is not very attractive either.

It is a smart decision to stay out of Brazil, says Zhao. “Brazil is really a crowded market. Seven companies have already qualified for BNDES financing. And Vestas and Suzlon are going to really soon. All that in a market of only 2GW.”

Despite the inroads into new markets, more than two thirds of Nordex’s sales still come from Europe, largely in Germany and Scandinavia, where it has been increasingly successful due to the cold-climate anti-icing technologies it has developed.

Sales in the Americas and Asia have been growing, which prompted Nordex to raise its guidance earlier this year. Management now expects full-year sales of up to €1.6bn — an increase of €100m.

The company also expects its Ebit (earnings before interest and taxes) margins to reach 4-5%, up on the previous guidance of 3.5-4.5%.

“Our path into the future is to continue with these things, product development, and also with moderate growth, but at the same time really to transform the organisation into a well-oiled machine where things are happening on a regular basis and with robust processes,” Zeschky says.

“I’m happy when looking at our pipeline. We have a very strong balance sheet after the past two years; we are a healthy company.”

Nordex plans to announce its medium-term strategy, including targets for the next two or three years, in late September at the WindEnergy Hamburg event, where Recharge will be producing show dailies.