Spain

Spain

Share price bucks downward trend -- Gamesa 2007 results

Gamesa increased its wind turbine sales to 3289 MW in 2007, 46% up on the company's previous record achieved a year earlier and providing revenues of EUR 2800 million. Turbines actually delivered totalled 2919 MW, another corporate best and 22% up on 2006. A further record was achieved when the company installed 505 MW in November, a personal best for a single month. Gamesa also says its visibility on future sales is better than ever: orders and framework agreements for turbine delivery through 2008-2009 total 8000 MW.

Publication of the company's annual results for 2007 was positively received by most market observers. Gamesa's share price went against the downward trend on Madrid's Ibex 35 prime shares index on several occasions following release of the results on February 28. Analysts at bankers Citigroup changed their recommendation from hold to buy.

Combined sales in 2007 from all three Gamesa divisions -- wind turbine manufacture, wind plant development and the solar business -- returned a EUR 468 million profit before tax in 2007 from revenues of EUR 3274 million. Revenues were up 36% compared with the previous year and pre-tax profit up 14%. The profit margin for earnings before interest, tax, depreciation and amortisation (EBITDA) was also 14%.

Group net profit after tax, at EUR 220 million, was 29.7% down, however, a reflection of inflated 2006 results from the EUR 113 million sale of Gamesa's aeronautics division. But as CEO Guillermo Ulacia points out, minus the extraordinary income from 2006 and Gamesa's "ongoing core business" in 2007 could report a 10% profit increase.

Extraordinary revenues will also be scored this year on the sale of the company's photovoltaic division, Gamesa Solar, to private equity firm First Reserve Corporation for EUR 261 million. Ulacia says the sale enables "one hundred percent focus on our wind power business."

For the two wind divisions, pre-tax profit on turbine sales was up 21% to EUR 393 million, though at 14% the profit margin was down on the 17% achieved in 2006. Ulacia puts that down to the start up of nine new turbine and component facilities in the 18 months up to end-2007, four in the United States, three in China and two in Spain, together with a "slower than expected learning curve" at its new turbine and blade factories in the US, particularly with reference to a defect in its first blade series.

Gamesa Energìa, the project development division, connected 715 MW of new wind plant in 2007, 63% up on the year before. Sales of completed wind plant reached 560 MW, 17% up and bringing in EUR 576 million, 22% up. Pre-tax profit, however, finished 12% down at EUR 88 million, though still represented a 15% margin. Gamesa says it has purchase commitments for 2100 MW of completed wind power stations in 2008-2009.

Internationalisation

The United States and China made up 23% and 15% of Gamesa's turbine business last year, compared to 15% and 11%, respectively, the year before. While still dominant in Spain, the company's annual market share in its home country dropped to 47.44% last year, from 49.7% in 2006. All three of these core markets for Gamesa reported installed capacity records in 2007. Gamesa has now increased its factory production capacity to 3600 MW of turbines a year, double what it could manage at the end of 2005.

Ulacia draws attention to Gamesa's vertical integration of key components in its manufacturing process, including blades (85% in-house) gearboxes (50% in-house) and generators (50% in-house). Last year Gamesa took a 30% stake in a Spanish tower manufacturing joint venture, Windar, and now claims to be 50% self sufficient in towers too. Ulacia says forging alliances with local suppliers abroad is key to securing supplies and reducing exchange rate risks.

Another key is Gamesa's focus on large strategic turbine clients, currently responsible for 90% of the business on its order books. Clients include the US wind division of Portugal's utility, Energias de Portugal, Horizon Wind, Gamesa's part owner and the world's largest wind plant operator, Iberdrola, and independent wind power asset manager Babcock & Brown, as well as Gamesa EnergÌa, which lays claim to a pipeline of over 20 GW globally.

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