British giant throws in the towel -- A wind turbine maker less

British owned international engineering conglomerate FKI is to pull out of the wind turbine business just over two years after acquiring German turbine manufacturer DeWind. FKI's sudden decision to exit wind turbine manufacturing comes just weeks after the entry of power generation giant Siemens into wind.

FKI cites "a number of recent developments" in the market for adversely impacting the market position of DeWind. "The rapid consolidation of wind turbine manufacturers and the increasing influence of major wind power developers have significantly increased competitive pressures," it says. This has led to continually reducing turbine prices, onerous contract terms and conditions, and the need for higher levels of investment. In addition, the slow-down in DeWind's traditional market in Germany leaves the company weaker, states FKI. In the last financial year, DeWind reported a loss of £6.3 million.

Paul Heiden, FKI's chief executive says the group had looked upon the wind turbine business as "high-risk but potentially high reward" at the time of the purchase. "During the past 12 months, however, a number of issues have weakened DeWind's position and delayed or impaired its growth opportunities. Now the requirement for product development and the ramp-up in inventories to address future sales opportunities require further significant investments," he says.

Among the challenges facing the company were the need to develop a 90 metre rotor for its 2 MW design, to develop technology for markets with higher winds than in Germany, and to produce a wind turbine for the technical needs of the US market, according to a source close to the firm. "The board does not believe a material cash commitment is justified by the risk profile and potential returns of the wind turbine business and hence believes that the proposed withdrawal is in the best interests of shareholders," says Heiden.

financial terms

FKI is now looking for buyers for the business, which it bought in May 2002, and is discussing possible technology transfer agreements with companies in the Far East. Proceeds from a sale would offset the cost of withdrawing from DeWind, which FKI expects to be around £90 million, of which £45 million will represent the write-off of goodwill. The cash cost of exiting will be around £20 million, with the remaining £25 million expected to cover costs such as redundancy payments.

FKI is consulting with DeWind's 316 employees in Germany and the UK about potential redundancies. Meantime, the group says that existing customer commitments will be met with turbines still being manufactured in FKI's Loughborough factory. And ongoing customer support will be provided from a service organisation based in Germany.