Results confirm internationalisation -- No Gamesa surprises

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Gamesa's full year 2005 results were in line with analyst expectations following the company's January warning that profit increase for the year would be roughly half the originally forecast 20%. On the basis of continuing operations, 2005 net income attributable to shareholders increased 10% to EUR 182 million on turnover from continuing operations of EUR 1.75 billion, up 32%.

The shortfall in the wind turbine manufacturing business is attributed to lower margins due to increases in the price of materials and poorer than expected sales due to delays in the Spanish market -- this is a reference to the slowdown in connection authorisations instituted by grid operator Red Eléctrica España. Turbine sales overall, nevertheless, increased 12% in terms of rated capacity to 1783 MW, a 19% increase in revenues. Markets were expanded through agreements for the upcoming supply of more than 1000 MW of turbines into the US and China, with manufacturing facilities being set up in both countries.

Grid constraints in Spain also hit Gamesa's wind farm development division. While selling 649 MW of developed projects to investors, 16% more than in 2004, the division suffered from a number of installations not going ahead as planned. As with turbine sales, 2005 was a year of internationalisation -- just 46% of project sales were in Spain. For 2006 new sales are agreed not just in Spain but also in Germany and Greece. The division's own portfolio of projects across various stages of development now exceeds 20 GW, a particular boost coming from increased activity in the US.

Net income down

Turbine manufacturing contributes some 70% of revenues and wind farm development the remainder from Gamesa's continuing operations, which do not include results from the aeronautical division, Gamesa Aeronautica. The company is in the process of selling the division and under international accounting norms it is not included in consolidated group figures. Including Aeronautica, while turnover was up 34% to EUR 1.77 billion and the unit garnered EUR 11 million of income, this was offset by a EUR 60 million write-down the company took in anticipation of an eventual lower-than-book-value sale price. As a result of this widely-anticipated step, actual net income attributable to Gamesa shareholders is EUR 133 million, as opposed to EUR 175 million in the previous year.

Looking forward, Gamesa says 2006 figures will benefit from high growth across both divisions. Analyst Alastair Bishop of Dresdner Kleinwort Wasserstein is neutral on the stock, but says management's guidance for another 10% net profit increase is perhaps deliberately cautious. He foresees a 20% increase with the expansion of the turbine division into the US being particularly important.

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