Nervous market punishes wind shares -- Rollercoster ride in Copenhagen for Vestas and NEG Micon

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In just 36 hours last month Denmark's two largest wind turbine companies lost 20% of their value, at least if the reaction of the Copenhagen stock exchange to the half-yearly reports of Vestas and NEG Micon is to be believed. In total EUR 592.8 million was wiped off their share prices in two days of hectic trading. But belief in the market's poor valuation was hard to maintain in late August, as share prices moved up and other wind companies released positive reports for the first six months of 2002.

Both Vestas and NEG Micon presented turnover and earnings for the first six months which were less than the year's average -- an expected reflection of the usual seasonal swings in the wind business where sales are consistently concentrated in the second half of any year. NEG Micon turnover for the first six months was EUR 215.5 million, resulting in a loss before tax of EUR 16.6 million. Managing director Torben Bjerre-Madsen retains his expectations for an annual turnover of EUR 808.3 million and a profit of EUR 47.1 million for the whole of 2002.

For 2002 Vestas had budgeted with a turnover of EUR 1.6 billion, but adjusted this downwards last month to EUR 1.4-1.5 billion. The margin for earnings before interest and tax (EBIT) is also revised, from over 10% to 9%. Turnover for the first half of 2002 was EUR 532.2 million, resulting in a pre-tax loss of EUR 900,000.

Technology failures

As NEG Micon has experienced with gear box defects and LM Glasfiber with blade problems, Vestas has had to set aside a large sum of cash for unexpected repairs of technology already installed, in this case a number of V80, 1.8 MW turbines sold to Germany. Vestas declines to say how many turbines are involved or specify the exact sum, but confirms it is under EUR 13.5 million. According to Jochen Keiler of Betreiber-Datenbasis in Germany, Vestas has sold 177 of its V80 turbines to German customers.

Vestas managing director Svend Siggaard declines to discuss details of the problems with the German V80 turbines. But wind engineering consultant Manfred Lührs says the trouble lies in the company's use of hydraulic pitch regulation. Other turbine makes have gone over to electrical regulation, he says. "It is a repeat of the problem on the Vestas V66," Lührs adds, referring to a 1.75 kW model. The oil in the hydraulic system is temperature sensitive and leaks happen, according to Lührs, making synchronised pitching of all three blades difficult to achieve. The problem came to a head at the beginning of the year, he adds.

Siggaard declines to confirm or deny Lührs' account of the problem. "This is not a series defect, but different problems relating to the design and installation of each turbine. All the problems and their solutions have been localised. The repairs demand no more than an individual treatment of the turbines. Teething trouble is probably the best description of it," says Siggaard.

Falling dollar

Technical problems are not the only factor influencing the share prices of Danish wind companies. The late extension of wind's Production Tax Credit (PTC) in the United States for 2002-2003 -- and the uncertainty over its future -- plus a dramatically falling dollar, have made their mark on turnover expectations for both Vestas and NEG Micon.

Such is the level of uncertainty over energy policy in the United States that Vestas has postponed its final decision on construction and siting of its first American factory, which is planned for a location in or near Portland, Oregon. Only when a decision on the next PTC extension is made will Vestas make its decision, says Siggaard. He anticipates this being within the next one or two months.

Despite the uncertainty, it is the American market that will be the locomotive for sales at both NEG Micon and Vestas in 2002-2003. For next year, Vestas maintains its projections for turnover of EUR 2.2 billion and a minimum EBIT of 10%. At NEG Micon, Bjerre-Madsen declines to set figures on its expectations for 2003, other than it is aiming for an annual growth of 20%.

The share prices of both NEG Micon and Vestas plummeted on the Copenhagen stock exchange during the week of August 19-23 to their lowest level in several years. NEG Micon dropped from DKK 190 to DKK 152 for a DKK 10 share, and Vestas from 160 to DKK 111 for a DKK 1 share. But NEG Micon shares made a strong recovery already in the first two days of the following week, with prices rising to DKK 184, while Vestas began a slower climb, recovering to DKK 119.


xGerman-Danish wind turbine maker Nordex, traded on the German Neuer Markt exchange in Frankfurt, published its quarterly report on August 26, which includes results for the first nine months of its fiscal year. Turnover in the third quarter was ¤109 million, a rise of 30% compared with the same period last year. Nordex retains its expectations for the 2002-2003 fiscal year of a turnover of ¤460 million and earnings of 5% of turnover -- the same profit percentage achieved in the third quarter of this fiscal year. Nordex share prices immediately rose by nearly half a Euro to ¤3.72.

LM Glasfiber

A day later, LM Glasfiber, by far the world's largest supplier of blades to the wind industry, produced its half yearly report for 2002. The accounts revealed a turnover of EUR 162.1 million, 22% more than in the same period last year. LM describes as "very satisfactory" on EBIT before depreciation of EUR 31.2 million and a loss of EUR 1.2 million. The company expects a turnover this year of about EUR 377 million, with EBITDA at 21-22% of turnover. The final result is expected to be zero, however, due to extraordinary costs, among them EUR 7.8 million for the company's failed flotation this year (Windpower Monthly, June 2002).

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