Internationalisation with China focus -- More Gamesa glad tidings

Spain's Gamesa produced a flurry of good tidings last month, ending with news of a 200 MW deal with Swedish utility Vattenfall and an agreement to provide up to 600 MW of wind turbines to the United States (next story). Its wind turbine manufacturing division, Gamesa Eólica, also announced a 302 MW deal in China and the go ahead for a manufacturing facility in the country just days after the company's wind project development division, Gamesa Energía, announced a 700 MW framework agreement with utility Iberdrola. The glad tidings followed earlier Gamesa news of wind plant sales across Portugal and Italy totalling 112 MW and a 22 MW turbine sales contract in France.

The financial world reacted positively as did Gamesa's share price. On the back of the China news, Gamesa was the second best performer on Spain's Ibex, the 30-prime shares index. Citibank changed its recommendation from hold to sell while US investment bank, Goldman Sachs, got its cheque book out to increase its stake in Gamesa from 1% to 5.03%.

China deal

Gamesa says the 302 MW Chinese order is the republic's largest yet for wind power. In total 355, 850 kW machines will be installed in five separate projects by subsidiaries of utility Long Yuan Electric Power Group. Of these, 236 will go to the Jilin Tongyu I and II projects in Jilin province, 54 to the Gansu Yumen project in Gansu province and 36 to the Heilongjaing Yichun project in the province of Heilongjiang. The last 29 will be installed at the Liaoning Huanren project in Liaoning province. The contracts are in addition to Chinese orders totalling 225 MW already secured by Gamesa this year.

Gamesa's new factory in China is under construction in the east coast city of Tianjin, 130 kilometres from Beijing. Gamesa says the EUR 60 million factory will produce 850 kW turbines at a rate of 400 MW a year starting in July, rising to 700 MW a year later. Until now, all Gamesa's orders in China have been fulfilled by exports from Spain.

Meanwhile, Gamesa Energiá reports that Iberdrola, in a framework agreement worth EUR 850-900 million, will acquire 600 MW of Gamesa wind projects in Spain and a further 100 MW of Gamesa projects in Italy, all at an advanced stage of development. Under the agreement, Gamesa expects to hand over the plant to Iberdrola at the end of 2009, although there is provision for the deadline to be extended to 2012 if necessary.

The 700 MW deal means Gamesa Energía has agreements in place to sell a total of 2000 MW of wind plant upon completion. Some are long term deals. For the next ten years, Vattenfall has secured first right of purchase on 200 MW of projects in Sweden that Gamesa is doing the legwork for. The latest deals add to the 1000 MW Gamesa has already sold so far, including agreements with Belgian utility Electrabel for 80 MW in Portugal -- the first sale under a 250 MW 2002 agreement -- and Spanish-Italian joint venture ERG-CESA Energía in Italy for 32 MW (page 33). The sale agreements for the 2000 MW of plant under construction cover 10% of its 20,000 MW portfolio of wind projects currently under development worldwide.

It was the string of good news, more than Gamesa's modest third quarter results, that sparked renewed confidence in the wind company among financial analysts. While at EUR 1380 million, group turnover for the first nine months of 2005 was up 33% on the same period last year and pre-tax profits were up 27%, net profits were up just 3% on 2004 due to a rise in corporation tax from 4% on earnings to 22%. "Given the attractive growth prospects for the wind power sector and the oligopolistic structure of the [wind turbine] industry, Gamesa's double-digit revenue growth looks secure to us," says Citibank.

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