Accounting for lost millions

1 November 1999

The article summarises the four main reasons for NEG Micon's financial woes for 1999, of which combined losses are projected to be DKK 550-600 million ($80-$87 million). The money has been consumed by: gear box and bearing problems; extra money for project development in North America; extra money for projects in Europe and Asia; and restructuring problems following acquisition of eight companies. "Against this background the company expects a positive result for year 2000," states NEG Micon.

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The combined losses of NEG Micon for 1999 are projected to be DKK 550-600 million ($80-$87 million), of which "provisions in the second half year" account for DKK 366 million ($54 million) and depreciation of goodwill accounts for DKK 98 million ($14 million). "Part of the provisions relates to compensation for operating loss in connection with damage and defects to be remedied," says the company. Furthermore the company has reduced the forecast for its year-end result by DKK 100 million ($70 million) from the DKK 75-100 million profit forecast in the half year results. Specifically the money has been consumed by:

o Gear box and bearing problems, which are expected to cost NEG Micon $36 million in a major retrofit program, of which $8 million has been spent so far. The turbines affected are 600 kW, 700 kW and 750 kW Nordtank, Micon and NEG Micon units, of which 300 are in Denmark, 400 in the US, up to 200 in Germany, 100 in Spain, 50 in the Netherlands, 50 in Britain, and 100 in China and Mongolia. The remainder are in Japan, Argentina and Costa Rica. All turbines were erected in 1996 or later and will be retrofitted over the next three years without cost to the owners. The gear box supplier, German Flender, will help with the retrofits, at a cost not disclosed;

o An extra $10 million for project development in North America, on top of the additional costs already reported in the half year results for 1999, due to poor project management and reporting;

o Projects in Europe and Asia costing an extra $13 million, also because of poor project management associated with the drain on resources to meet the June 30 deadline for project commissioning in the US;

o Acquisition of eight companies -- of which particularly turbine manufacturers Wind World of Denmark and NedWind in Holland "have proved to be a disappointment in terms of both earnings and technology." An extra provision of $6.4 million has been set aside for "restructuring."

"Against this background the company expects a positive result for year 2000," states NEG Micon.