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Profit fails to keep pace with growth -- Gamesa remains bullish

Extraordinary costs and teething problems associated with starting-up wind turbine production in China and the US have hit Gamesa's profits in the first half of the year, reports company CEO Guillermo Ulacia. Profit on non-extraordinary items was just EUR 63.3 million, the same as in the first half of 2006 despite a 67% increase in revenues in the first half of 2007, to £1496 million.

Gamesa profit, however, is already on track to recovery, says Ulacia, with the US and China in the frame as key growth markets. Plans to consolidate Gamesa's global reach are proceeding well and annual production capacity will be at 3600 MW by the end of 2008, up from 1800 MW at the end of 2005, he says. For the year as a whole, Gamesa forecasts installation of at least 2760 MW globally, 15% up on last year.

The stock market seemed to take Ulacia at his word. The day after publication of the company's results for the first half of the year, Gamesa led the Ibex 35 on Madrid's stock exchange, with its share price climbing 3.27% to reach EUR 29.96, representing a 49% increase since January 1.

Apart from the 6% invoiced by its solar division, the rest of Gamesa's turnover came from sales of wind turbines by Gamesa Eólica and sales of completed wind plant by Gamesa Energía, the project development division. Gamesa Eólica sold 1497 MW of turbines over the first six months, 57% up on the same period last year, providing revenues of EUR 1247 million. Of those sales, 1015 MW was fully installed in the period, a 24% improvement in completion of sales compared with last year. Work in progress (the proportion of installed capacity against sold capacity over a given period) was 32%, compared to 14% in the first half of 2006, the result, says Ulacia, of Gamesa's focus on tightening delivery times to clients.

Gamesa Energía invoiced EUR 201 million from wind plant sales, 31% up on the same period last year, despite selling 8 MW less than the 156 MW sold in the same period. The higher wind plant sales price is not only a knock-on effect from higher turbine prices, but also due to added sophistication, says Ulacia. To comply with new laws, wind plant in Spain are delivered with advanced control flexibility as an aid to the integration of wind power into power system management.

The overseas market is playing an ever more significant role for Gamesa, Ulacia notes. Sales of completed wind plant in the US, which began this year, accounted for 30% of all capacity sold, while Portugal and Italy accounted for 8% and 4%, respectively. Deals are due to be completed soon, he adds, which will put France and Germany back on the chart also.

Turbine sales in the US in the second quarter dropped to 17% of the total, from 26% achieved over the first quarter, but Ulacia expects fortunes there to pick up again. He reports a 39% increase in nacelle production at Gamesa's Pennsylvania facility. "The only restriction now to turbine growth is the supply chain," Ulacia says, pinpointing blades and towers as the key components.

The company has formed a tower manufacturing joint venture in Spain with steel forgers Daniel Alonso (Windpower Monthly, August 2007) and is negotiating a deal for the US market with Danish blade suppler LM Glasfiber. In China, which accounted for 9% of turbine sales, activity is expected to increase. Production at the company's Tianjin nacelle plant increased by 70%, while its new blade facility in Tianjin started production during the second quarter. Gamesa is also building a gearbox assembly facility in China, aiming to ensure around 75% local content for its equipment in China. While already manufacturing a large part of its blade, gearbox and generator needs in-house, the company's future now relies on horizontally integrating the rest. "We do not discard any kind of alliance anywhere," says Ulacia.

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