Sales target met but margins tight -- Repower profits halve

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Repower Systems beat its target for turbine installations in 2003, but business results were disappointing. The Hamburg based company got 188 turbines in the ground last year, eight more than planned and their combined capacity of 291.3 MW boosted turnover by 17% compared to 2002, to around EUR 295 million. But earnings before interest and tax halved to EUR 13 million from EUR 26 million.

"Market uncertainty due to political controversy over the renewable energy law [in Germany] continued into the last three months of the year, the period when turnover is usually highest," says Repower. This pushed most installations into the last quarter -- 110 turbines were installed in the last six weeks of the year -- and the work load was such that extra staff had to be employed, "involving higher costs." Coming on top of the general downward pressure on turbine prices in a buyer's market, "a significant reduction in margins had to be accepted in the October-December period," reports the company. Repower nevertheless proposes to keep dividends unchanged at EUR 0.6/share, "a signal to the market that yes, we made a profit," says Thomas Schnorrenberg. For 2004, the company expects moderate growth in turnover and slightly improved results.

Although Repower increased its domestic market share to 10.7% last year, just five machines were erected abroad. This was modest considering the importance attached to expanding business in other countries as the German market declines. Still, Repower says incoming orders indicate that sales abroad should amount to at least 50 turbines in 2004.

market expansion

Foundations for expanding more foreign business were laid last year. Two letters of intent were signed in December with entities in China, one for a joint venture with Tianjin Hi-tech Holding Group for marketing the MD77 1.5 MW turbine and the other with the government of the province of Tianjin for support for wind station developments. In November, Repower's Portuguese subsidiary did a first deal, for three 2 MW turbines, for local developer Parque Eolico de Ribamar. In September, Repower signed an exclusive contract with German utility and developer MVV Energie for 230 turbines for seven wind stations in Spain. MVV Energie's developer, Eternergy, confirms these projects are proceeding, with about 50 machines to be installed this year. Also in September, Repower founded a joint venture with UK engineering company Peter Brotherhood that will market and service turbines in the British market. The previous July it had set up a joint venture in Greece with construction company Diekat for local wind projects.

Efforts to develop foreign markets and the cost of introducing the 2 MW turbine series to the market -- 20 were installed last year including two prototypes -- and development of a 5 MW machine for offshore use all had an impact on results. "But these moves open the way for a successful follow-up year," according to chairman Fritz Vahrenholt. Customers have made prepayments for over half of the 50 turbines destined for foreign markets in 2004. Furthermore, Repower's development wing, Denker&Wulf (in which it holds 84.15%), sold 41 turbines to an unnamed fund company owned by a German bank in a deal linked to delivery of a further 50 Repower turbines to German projects this year.

Boosting its position on the home market, Repower has improved its service ranking to number two, behind Enercon but ahead of AN Windenergie (which markets AN Bonus machines). German wind association Bundesverband Windenergie conducts a quality survey among its turbine-operating members each year. Contributing to its service profile, Repower offers a 12-year full service package, titled ISP+, or integrated service package plus, to its domestic market customers.

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