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What is LM Wind Power’s future in GE Vernova?

Newly-listed GE Vernova plans to cut around 10% of the global workforce at turbine blade specialist LM Wind Power, which it bought for $1.65bn in 2017, and said LM is set to focus on external customers. We look at what this drive to be leaner and more profitable means for LM in the months ahead.

RICHARD HEAP

April 17, 2024

  • LM Wind Power last week confirmed it is making 1,000 job cuts
  • LM’s CEO has stressed the need to be leaner and more profitable
  • The news came out as GE Vernova listed in New York on 2nd April

 

It has been a month of extremes for newly-listed GE Vernova.

On 2nd April, the company celebrated its split from parent group General Electric as it listed on the New York Stock Exchange. GE Vernova chief executive Scott Strazik said the firm has completed its spin-off from GE and is now “singularly focused on accelerating the energy transition to create a more sustainable future”. Happy days.

However, the mood of joy is not replicated in GE Vernova’s specialist blade arm LM Wind Power, which it bought for $1.65bn in 2017.

Last week, LM confirmed it plans to cut 1,000 jobs, which represents around 10% of its global workforce. The cuts have been on the horizon since the start of 2024 but were confirmed last week in a leaked internal communication.

Olivier Fontan, chief executive at LM, said the company needed to be smaller, leaner and more profitable within GE Vernova so it could cope with market challenges such as inflation. Consultations on the planned job cuts started in March, and LM is due to reveal more details about its future strategy in either late April or early May.

In addition, LM last week reduced operational capacity at a factory in Cherbourg, France, because of damage to one of the moulds used in the manufacturing process for its blades. The company said repairs are likely to take until at least 23rd June. This means workers at the factory are now under-employed, and the problem is also likely affect the installation schedule for the 3.6GW Dogger Bank complex in UK waters.

Finally, LM announced it was closing a blade factory in Izmir, Turkey.

But challenges at LM stretch back beyond the headlines from the last week. What have been the big issues for LM and what does its future look like in GE Vernova?

 

Turbine evolution

As with other turbine and blade manufacturers, LM is not a stranger to restructuring.

In 2020, it closed factories in Denmark and the US due to “declining demand” for certain blades and a need to “streamline operations” as GE chose to concentrate on fewer larger models, such as the Haliade-X offshore turbine platform. The closures were a predictable response to a market where turbines have evolved quickly.

In 2022, LM abandoned plans to open a blade factory in Teesside in the UK as GE had not won enough UK orders for the Haliade-X.

That was also the year LM recorded its largest annual loss to date to become technically insolvent, and required a bailout from its parent group. GE said in its results that 2022 had been a “challenging year” for LM but that the division was “focused on amplifying performance by focusing on quality, reducing the number and complexity of blade variants, and lowering costs”.

These challenges won’t have eased in the last two years given the very public headaches caused for the industry by inflation, interest rates, supply chain disruption and political uncertainty. In that context, the decision to cut 10% of LM’s workforce now is painful but understandable, as GE Vernova looks to put its subsidiary on a path to short- and long-term profitability.

But is GE Vernova going to hold onto LM at all?

We could look at these cuts as a chance for GE Vernova to put LM back on a sound financial footing so it can better compete in the market. This would bolster GE.

Yet the most intriguing element of the recent leaked communication is how LM is now set to focus on “external customers”. We haven’t heard much discussion about this, but it tells us that GE Vernova is reducing its reliance on its blade specialist on a day-to-day basis.

This suggests that a sale of LM may be a strategic option too.

After all, GE Vernova has just listed and is looking for ways to boost its share price. One way it can do this is by showing it has a plan to tackle some of the financial difficulties at a subsidiary that has caused some headaches for the GE group in recent years. But cutting overheads and boosting profitability at LM would also make it a more attractive acquisition target for any potential buyer. Such a disposal may help GE Vernova streamline its own finances.

Finally, the split from its parent group GE shows that GE Vernova is not wedded to keeping the structure it already has. This move towards giving subsidiaries more independence has been happening at Siemens too, with Siemens Energy becoming an independent company in 2020. We expect this trend to continue.

When GE bought LM in 2017, our big question what whether LM would be able to serve external customers, as well as GE’s in-house turbine manufacturing arm. It has managed to do both.

Now the question has changed to whether GE Vernova would even need LM to be part of the GE group if the subsidiary is to focus solely on external customers. However, this is speculation. LM did not respond to our request to discuss its strategy following the current job cuts, while GE Vernova has also stayed tight-lipped.

What we can say is LM has played an important role as GE Vernova has established its ‘workhorse’ onshore and offshore turbines in a highly competitive global market. LM has a track record of innovation and is a known name in the market that should stand it in good stead, whatever its short-term future may hold.

Its employees and customers will hope for clarification in the coming weeks.