Revenues up but profit halves -- Growth pains at LM Glasfiber

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A 10% increase in revenues and a 15% increase in the volume of megawatt equipped with blades was not reflected in LM Glasfiber's profit for 2005, which more than halved from DKK 331 million (EUR 44.4 million) in 2004 to DKK 160.5 million (EUR 21.5 million) last year. Like the rest of the wind turbine industry, the world's largest manufacturer of rotor blades is battling big increases in the price of raw materials, poorly utilised production capacity -- for LM primarily at its Danish and Spanish factories -- and significant investment in new capacity and technology.

On the other hand, board chairman Mark Florman believes the company is better prepared to take part in the wind market's continued growth. LM is expecting a 25% increase in sales this year having equipped 3000 MW of the nearly 12,000 MW of wind turbines installed in 2005. The optimism is based on the biggest order book ever, a broader customer base, and extended contracts both with key customers and material suppliers. The strategy closely follows that also embarked upon by the wind turbine manufacturers.

Growth at LM is being secured through production capacity expansions either completed in 2005 or close to being operational. It has new factories in Canada and India and is expanding its facilities in China and the United States. The aim is to avoid the situation last year when LM's American unit could not keep pace with demand, requiring shipment of blades from Europe -- another factor which set its mark on last year's financial result.

LM's annual report provides no details on how its owners will solve the problem of rising turnover and decreasing profit, but an indication of how it will be achieved lies in the company's emphasis on "greater capital discipline" and "supply chain streaming." A temporary new supply chain director, Anthony Hill, has been taken on who will also be in charge of LM's subsidiaries. The purpose is to improve planning, purchase and supply logistics with the aim of reducing costs, says Broust Nielsen.

He stresses, however, that LM's problem in 2005 has not been loss-making orders. "Orders have been entered into at the right price, but we were subsequently hit by the rising price of raw materials, which we shouldered for our customers," says Broust Nielsen. He adds that the risk of a repeat of the situation has been minimised through long term contracts with suppliers.

According to LM, it sits on 27% of the world market for wind turbine blades. Its market share has been slowly dropping in recent years, but it expects the trend to be reversed this year. The wind turbine industry's spate of mergers has meant fewer potential customers for LM, with its customer base dropping to 14 in 2004. Last year the number of customers increased to 20 and with demand for turbines outrunning supply, new turbine factories are being built, not just in Asia and America but also in northern Europe.

LM Glasfiber has 2600 employees and 14 subsidiaries in eight countries. It is owned by UK asset management fund Doughty Hanson & Co, which not long after buying LM failed in an attempt to float it on the Copenhagen Stock Exchange. A public listing is still the aim of LM's shareholders, although the annual report gives no suggestion of when this will be.

LM, which has been rudderless after the unexpected departure of Paul Anthony, has a new CEO, Swedish born Roland Sundén. He takes over at LM after 20 years with car maker Volvo and the past three years as president of the global agricultural division of Case New Holland, with 7000 workers and a turnover of $12 billion. The appointment, says LM, follows an extensive international search and selection process. Anthony, who left his job after a few months, had replaced LM's long standing director, Anders D Christiansen, who was fired by Doughty Hanson in July last year.

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