Another heavyweight marches into the industry -- Siemens to operate Bonus as separate division in Denmark

Another corporate giant of the international power generation industry has moved into wind power as a turbine manufacturer. Germany's Siemens, the world's leading power equipment supplier, announced last month it was buying privately owned Danish company Bonus Energy A/S, the world's fifth largest wind turbine manufacturer. From now on, Bonus will be competing directly with the industry's biggest players for delivery of turnkey wind power projects, also offshore. Siemens is following the lead set by American General Electric with its purchase of Enron's wind turbine business in 2002.

Within the next three to five years the long time managing director of Bonus, Palle Nørgaard, will hand over the reins of the company to a Siemens-only management. But there are no plans to move production facilities out of Denmark, where Bonus is based in the small country town of Brande and makes rotor blades at a works in Aalborg. Neither are there immediate plans for changes among Bonus employees and management. Indeed, Siemens Power Generation intends to base a new division, Siemens PG Wind Power, in Brande.

The sale is expected to be final in December, once it has received the approval of the EU's competition commission. The purchase price has not been revealed, but is believed to be between EUR 200 million and EUR 335 million.

Daily management of the company will be shared by Nørgaard and Andreas Nauen, previously director of strategy and marketing at Siemens/Westinghouse in the United States. Siemens acquired power station builder Westinghouse, which also built a 600 kW wind turbine model in the 1980s, in 1998. Siemens Power Generation, a company within the huge Siemens concern, has an annual turnover of EUR 6.9 billion. In the past financial year, turnover at Bonus was EUR 269 million.

Whether Siemens intends to put the kind of effort into growing its wind turbine business as GE has done remains to be seen. "We want to grow faster than the market. At present the world market is growing at about ten per cent a year. And we expect to more than double turnover within the next five years," says Alfons Benzinger, speaking for Siemens Power Generation in Germany. A doubling of turnover will still leave Bonus behind the big four, Vestas, GE's wind division, Spain's publicly traded Gamesa, and privately owned German company Enercon. They all have revenues more than a EUR 1 billion a year. "Yes, klein aber fein, small but fine," confirms Benzinger.

He agrees that Siemens could have chosen to make its own wind turbine instead of buying a company. "You have to consider what is the best route. We have chosen a very good turbine supplier." He points out that it was easier to buy Bonus, with one owner than try a takeover of a publicly listed company.

Preferred status

Benzinger stresses that Siemens will continue to supply components such as transformers, generators and power converters to the broad wind industry. What it will do with the Dutch wind project development business of Siemens Nederland is an unanswered question. Siemens Nederland ventured into the market eight years ago as a turnkey developer of projects in the Netherlands and now has around 100 MW of installed capacity to its name, says the company's Bernard Bos.

Historical developments in the wind industry have led to a convoluted set-up for Siemens Nederland, with links to GE Energy. To date most of Siemens' projects in the Netherlands have been equipped with Tacke/Enron machines as a result of Siemens' "preferred customer status," initially with Tacke and then with Enron after its purchase of the German company. The preferred customer status gives Siemens a special price deal on turbine purchases, but that arrangement may not still be active under GE Energy's ownership. A statement from Siemens Nederland on the Bonus purchase was still under review by the board of directors on October 29, after several days of consideration.

A heavyweight

In Denmark, Nørgaard confirms the transitional nature of the shared leadership structure at Bonus for the time being, saying he "will not be here in five or three years." But he believes the bulk of Bonus employees will stay within the company. Concern for its staff was a prime reason why Bonus was not sold to a competing wind turbine manufacturer, says Nørgaard, adding that there have been no negotiations with a potential buyer from within the industry. He declines to say whether any company in the wind industry expressed an interest in owning Bonus. Nørgaard, who has run Bonus for nearly two decades, says he has an "owner interest" in the company, which is otherwise solely owned by Peter Stubkjær Sørensen.

What was of decisive importance was that a buyer should be an industrial heavyweight with the goal of preserving and strengthening Bonus, even if the company had to have a new name. "The strength can be seen in two areas in particular," says Nørgaard. "In the first place, Bonus will be able to bid on the really big projects, which today can be more than EUR 270 million. It would be fair to ask if it would have been defensible for Bonus to have done so on its own, but nobody can question whether Siemens has the strength to do so."

With a far more solid capital foundation, Bonus is now in a better position to offer turnkey projects, also offshore, says Nørgaard. This is a particular requirement that Bonus has run up against in the British market. "Until now we have concentrated on just delivering turbines," he says.

The second area of added strength is that Bonus will gain much greater market power, particularly in connection with sales and distribution, says Nørgaard. Bonus' share of global wind turbine sales has been falling, slipping to 6.6% last year compared with 8.6% five years ago, according to market analyst company BTM Consult in Denmark.

Slow but sure

"Until now we have had a selective market strategy and chosen to say: that's enough, in certain situations. That has fitted well with Bonus' size and the company's strategy," says Nørgaard. "And falling market share has never worried us. On the other hand, it has been important for us to self-finance our own internal development. Whether we've had a larger or smaller market share has been completely beside the point."

Bonus is the only company from the many established in the Danish wind turbine industry's early days to have avoided bankruptcy when the rest of the industry collapsed in the late 1980s. Bonus turbines were first produced in 1981 by Danregn Vindkraft A/S, a subsidiary of Danregn, a supplier of irrigation equipment to the agricultural industry.