RNS Number:3264S
Clipper Windpower PLC
15 April 2008
CLIPPER WINDPOWER PLC ANNOUNCES RESULTS FOR THE YEAR ENDED
31 DECEMBER 2007
Clipper Windpower Plc (London Stock Exchange: AIM-CWP) and its subsidiaries
(together "Clipper", "the Group", or "Clipper Windpower"), a leading
manufacturer of advanced wind turbines and developer of wind energy projects, is
pleased to announce its results for the year ended 31 December 2007.
Clipper's management will host a conference call for analysts and shareholders
with a live audio webcast presentation today at 09:00 hrs (London time). To join
the conference call, please dial +44 (0) 20 7138 0825 (listen only). A copy of
the investor presentation will be available on http://www.clipperwind.com at 08:
50 hrs (London time). To listen to the live webcast, please visit http://
www.clipperwind.com/2007prelims.php or http://www.clipperwind.com.
Forward looking statements
Statements contained in this press release and the conference call, particularly
those regarding the possible or assumed future performance of the Company,
industry growth or other trend projections and any estimated company earnings
are, or may be, forward looking statements and, as such, involve risks and
uncertainties. Any such statements may be influenced by factors that could cause
actual outcomes and results to be materially different from those expressed or
implied by these statements.
For further information, please contact:
Investors
Isabel Lutgendorf
Investor Relations Director
+44 (0) 20 7820 1078
Financial Press
Patrick d'Ancona
M: Communications
+44 (0) 20 7153 1547
This announcement was approved by the Board of Directors on 14 April 2008. A
copy of this announcement and the Annual Report and Financial Statements for the
year ended 31 December 2007 (including a Notice of Annual General Meeting) will
be available for inspection on the Group's website at http://www.clipperwind.com
The ordinary shares of Clipper Windpower Plc are traded on the Alternative
Investment Market of the London Stock Exchange and are not registered under the
US Securities Act 1933, as amended. Such shares may not be offered or sold to
residents of the United States or to persons acting on their behalf, or to other
persons who are "United States Persons" within the meaning of Regulation S as
promulgated under the Securities Act of 1933, unless such shares have been
registered under the Securities Act or there is an available exemption from
registration.
Chairman's Statement
2007 was our first full year of production and, although the output flow was
irregular at times, I am still very pleased with the progress we achieved
throughout our manufacturing operations. In 2007 we completed 137 turbines
representing 343 megawatts ("MW") at our Cedar Rapids facility, compared to
eight produced in the final months of 2006. This production level is equivalent
to approximately 6.5% of new wind turbine installations in the US(1) in 2007.
Scaling up production also involved an increase in plant floor space from 215 to
over 330 thousand square feet and a sharp increase in plant workforce to 296
employees in 2007. We now have sufficient plant capacity and equipment, a
trained workforce and processes in place to assemble over 400 turbines per year,
with potential for further capacity extensions.
As is often the case in the early stages of producing complex machines,
manufacturing challenges emerge. In September we announced that our production
had been affected by inadequate component quality from two drivetrain component
suppliers. As the year ended, we made a decision to reinforce our blade design
for operational conditions which had not been recognised by certification
authorities previously. Clipper was not the only company affected by this, with
other major suppliers of large wind turbines also requiring blade modifications.
Full company resources were applied to driving the remediation measures as well
as manufacturing turbines to the new specifications.
These challenges required rapid but precise refinements to the processes of our
component suppliers, as well as remediation of the units already shipped, which
resulted in delayed turbine deliveries, project cost overruns, and a resultant
delayed recognition of revenues. The costs of these remediation activities are
substantial - with much of the work done in the field under time pressures with
large cranes and specialised crews. Provisions for turbine remediation costs,
loss making contracts, warranties, inventory obsolescence and liquidated damages
on late turbine deliveries accounted for $107.1 million out of our full year
loss of $192.5 million. This 2007 loss includes the impact from recent events
and updated assessments subsequent to Clipper's 25 March press release that
added approximately $20 million in non-recurring costs related to certain
warranty contracts, updated drivetrain remediation and blade reinforcement cost
provisions, and new estimates on component reusability for remediated
drivetrains. While we have indicated the major factors which accounted for this
difficult start-up year, the fact is that we did not execute to the level we
needed on these issues, and it was expensive. We have addressed shortcomings
aggressively and will continue to do so.
I believe our thorough, methodical and focused response in dealing with these
issues, will reflect in meaningful reductions of future warranty costs and in
further strengthening of customer confidence in the long-term reliability of our
technology. This prompt and disciplined approach to early-stage teething issues
in advance of our increasing production volume to fill current firm orders
should serve the company well.
As production increases, quality processes and controls remain an area of
significant emphasis. During the year our combined engineering, procurement and
quality teams nearly doubled in size and we added experienced industry leaders
in key positions. In July we commissioned the first test station to conduct
rigorous drivetrain operating testing prior to shipment to customers' project
sites. We added a second drivetrain test station in December.
Throughout the year we made steady progress in strengthening and broadening our
supply chain, a key requisite to increasing production and controlling component
costs. We have strengthened our component sources in several areas considered
critical at the beginning of the year and as the year ended, we had contracts
and/or purchase orders in place which covered approximately 90% of key
components for 2008 production requirements. While Clipper still has single
sourcing for blades and generators, the average number of vendors for other key
components nearly doubled in 2007 compared with 2006.
Turbine Orders Double
The market acceptance for Clipper's Liberty 2.5 MW turbine continues to grow as
seen with the strong increase in turbine orders. During the year, cumulative
third party firm orders rose from 370 units to 825 units, equivalent to 925 MW
and 2,063 MW respectively. Furthermore, as of 31 December 2007, Clipper had an
additional 1,500 units (3,750 MW) in joint development and contingent sale
agreements. While the global market for wind turbines is becoming robust, I
believe the size and quality of our customer orders reflect an appreciation for
our technology's advantages in the long-term operation of utility scale wind
projects.
CAPGEN - Transforming Project Development
In September we commenced negotiations concerning an initiative which will
combine Clipper's development assets with those of Helium Energy, a fast-growing
European renewable energy development business, to create Clipper Capital and
Generation ("CAPGEN") with an initial portfolio of development sites exceeding
10,500 MW. Helium is a wholly owned subsidiary of Hemeretik, the Spanish
construction and real estate group.
Once the financing of CAPGEN is completed we expect project acquisition and
development will accelerate and will enable long-term ownership in power
generating assets and supply significant potential for further growth in the
major global wind markets.
CAPGEN should become another major customer for Clipper turbines, and provide
strategic access to the European market. Once CAPGEN is fully operational,
Clipper will focus its resources on advancing turbine technology, expanding its
manufacturing capacity, and gaining market share. In March 2008 Clipper received
non-binding commitment letters valuing CAPGEN at US$900 million.
Clipper Technology and Turbine Scale Leads in the Industry
First of all, our strategy is based on securing our market position by
delivering a highly reliable, high-performance Liberty 2.5 MW turbine, which we
believe should command premium pricing over time and, combined with volume
production, value engineering, and global supply chain management, will lead to
enhanced product margins. The second part of our strategy calls for driving
innovation and advancing turbine technology towards lowering cost-of-energy and
broadening technology applications. The competitive advantages which we believe
come from this, carry into manufacturing, project development, fleet services,
and ultimately, ownership of generating assets. Efficiencies from innovation
gained in one part of this chain benefit other parts, providing synergies for
the whole. We believe this represents a powerful business model, uncommon in the
industry.
Project Britannia, which involves the development of a 7.5 MW turbine, was
initiated in 2007 with our small but talented advanced technology team, while
our major engineering resources continued to push forward manufacturing and
field projects. The Britannia project is aimed toward the forecast upsurge in
European offshore wind development beginning in 2011 and 2012, and the project
has received an initial �5 million support package from One NorthEast(2), which
provides engineering and state-of-the-art test facilities for the MBE(3) turbine
blades, generators and drivetrains. This funding will also support development
of the initial MBE turbine supply chain and related manufacturing facilities.
Strategic Investments
On 25 March 2008 Clipper announced that it had entered into subscription
agreements with certain major institutional shareholders, whereby such
shareholders would subscribe in aggregate approximately �25.2 million
(approximately US$50 million) for shares representing approximately four per
cent of the enlarged issued share capital. The issuance of these shares is
subject to the fulfillment of various conditions including shareholder approval
at a general meeting of the Company to be held on 18 April 2008. Subject to
satisfaction of the conditions it is expected that the shares will be issued on
21 April 2008. In March 2008, we also successfully arranged a $60 million
bank-administered secured term credit facility funded by a customer.
On 8 April 2008, Clipper entered into an agreement with One Equity Partners, the
private equity arm of JPMorgan Chase, which, subject to the fulfillment of
various conditions will result in an equity investment of $150 million in
Clipper for approximately 15.8 million shares (assuming a subscription price of
480p per share and exchange rate of �/$1.9764). The investment fortifies
Clipper's balance sheet, allows the Company to strengthen its core wind turbine
business and provides additional working capital to support growth. More than
just an investor, the agreement sets out the terms of a financial and strategic
relationship with One Equity Partners which will result in One Equity Partners
working with Clipper to strengthen our supply chain. One Equity Partners will
also add to the creation of value through board and committee representation.
One of the conditions to the subscription and the ongoing strategic relationship
is the approval by the shareholders of various resolutions to be considered at a
general meeting of the Company on 6 May 2008. Subject to the fulfillment of the
conditions it is anticipated that the shares will be issued to One Equity
Partners on 7 May 2008.
The Company also entered into an option agreement with One Equity Partners on 8
April 2008. The granting of the option is conditional upon the subscription
agreement referred to above becoming unconditional in all respects. Under the
terms of the option agreement Clipper would grant an option to One Equity
Partners to subscribe for up to 2,914,850 shares at an exercise price of �5.375
per share.
Board Changes
During the year, we announced the appointment of Nobel Laureate Dr. Alan J.
Heeger as a Non-Executive Director. Finn Hansen, a Non-Executive Director since
2005 and recognised expert in wind turbine manufacturing, took on an interim
Executive role to lead our manufacturing operations. In addition, we look
forward to the nomination of two partners from One Equity Partners to our Board
of Directors in the very near future.
Strategy for Growth
The press release on 9 April announcing the financial and strategic relationship
with One Equity Partners indicated the creation of a committee, which will have
the responsibility for making various recommendations to the board with regards
to appointments, annual business plans, budgets, corporate actions, financing
arrangements and changes to the operating plan. The committee will be chaired by
Clipper's Chairman and CEO, and will initially consist of three members: Mark
Chaichian, head of Business Development for Clipper Windpower, James GP Dehlsen
and a representative from One Equity Partners.
As we move forward in 2008, our manufacturing functions are performing well,
output is rising and we are reiterating our production guidance of 311 turbines
in 2008. The remediation programme remains on target for third quarter
completion and the Company has a healthy book of orders. Our next major task is
increasing turbine manufacturing capacity. This may be accomplished by
reconfiguring our Cedar Rapids Plant where three major turbine subsystems - the
machine base, the drivetrain, and the rotor hub - are currently produced. The
Cedar Rapids Plant would then become the "Centre of Excellence" for Clipper
drivetrains, bringing more of the manufacturing functions in-house and providing
a substantial increase in capacity. Plans and budget for this phased transition
to the next level of capacity should be completed in late 2008.
We are also planning further initiatives to be positioned for the major
expansion in wind energy that we believe lies ahead. The UK has affirmed a
target of 20% of energy to be generated by renewable sources by 2020, with a
substantial portion to be provided by offshore wind. The USA is now engaging
more seriously on wind energy, and it is possible that additional wind energy
capacity in the range of 250,000 MW to 300,000 MW will be needed in this major
electricity market. This compares to the present 94,000 MW of cumulative global
installed wind capacity produced since the industry emerged in the early 1980s.
Our intention is to be a major player in this expansion.
In summary, I believe we have a solid manufacturing base for the Company with an
excellent position in the North American market.
Our growing book of turbine sales contracts has moved to higher average prices
which, along with a levelling off of turbine component costs, should lead to
attainment of industry normalised EBIT ("Earnings Before Interest and Taxes")
margins in 2009, following a year of transition in 2008. This, overlaid with
Project Britannia to meet the forecast European offshore expansion starting in
the next few years, provides perspective on how we intend to build shareholder
value and gain market share.
Customers and Employees
Finally, I would like to thank our customers for their ongoing loyalty and
support. Clipper is dedicated to providing the leading wind turbine technology
for our customer's competitiveness.
Equally, the commitment of our employees has been outstanding and has helped us
build strong foundations for future growth, and I should like to record our
thanks on behalf of the Board of Directors for their dedication.
James G. P. Dehlsen
Chairman and Chief Executive Officer
Business and Financial Review
Business Review
GLOBAL WIND ENERGY MARKET
The global wind energy market continues to grow strongly with 20,000 MW of wind
power installed in 2007, led by the US, China and Spain. This represents a 31%
increase over last year. Cumulative worldwide installed capacity increased by
27% to 94,123 MW.(4)
In North America, breaking all its previous records, the US wind energy industry
installed 5,244 MW in 2007. The new installations expanded the nation's total
wind power generating capacity by 45% in a single year, bringing the US total
installed wind power capacity to over 16,800 MW.(5)
In Asia, the growth rate was even higher at approximately 50%, increasing from
an installed capacity of 10,659 MW to 16,091 MW at year-end 2007. Installed
capacity in Europe grew 18% increasing from 48,563 MW at the end of 2006 to
57,136 MW at year-end 2007. In terms of economic value, the global wind market
in 2007 was worth about Euro25bn or US$37bn in new generating equipment.(6)
The European Commission recently proposed a directive on renewable energy which
aims to achieve 20% of the EU energy consumption from renewable energy sources
by 2020. On 10 December 2007, John Hutton, UK's Secretary of State for Business,
Enterprise & Regulatory Reform agreed to the EU target by committing to take the
UK's overall renewable energy supplies from less than 2% now to its share of the
EU-wide 20% in 2020(7).
Offshore growth trends continue strong. The European Wind Energy Association
estimates that between 20,000MW and 40,000MW of offshore wind energy capacity
will be operating in the European Union by 2020, compared to 1,100 MW in 2007(8)
.
STRATEGY
Clipper's business strategy includes three core elements:
*Manufacturing the Liberty wind turbine for sale directly to third party
developers and project owners;
*Research and development aimed at expanding our technology advantage,
adapting the technology platform for larger scale turbines and offshore
applications;
*Project development activities via CAPGEN, adding to its existing
portfolio and facilitating the sale and deployment of the Liberty and future
generation turbines, and participating in the benefits of project ownership
and power generating revenues.
KEY PERFORMANCE INDICATORS
The following performance indicators were tracked closely in 2007 to measure the
Company's progress:
*Wind turbine sales order book, both firm commitments and contingent sales
measured in megawatts ("MW");
*Wind turbine assembly completions;
*Employee and assembly facility ramp-up, in terms of number of employees
and assembly facility square footage;
*Availability of critical components such as blades and towers fabricated
by outside suppliers, measured in terms of forecast supplier commitments;
*Development project construction progress and wind resource inventory;
*Wind turbines commissioned and turbine performance; and
*Cash and working capital levels.
COMMERCIAL SALES ACTIVITY
The market for Clipper's Liberty 2.5 MW turbine continues to strengthen in
recognition of the technology advantages of the machine and through the positive
response of customers to the diligence and responsiveness which the Group has
demonstrated in its manufacturing and field services activities. In its first
full year of production, Clipper produced turbine capacity (343 MW) equivalent
to 6.5% of the reported installed capacity in the US(9) in 2007.
Cumulative third party firm orders increased substantially from 370 units
(925MW) at the end of 2006 to 825 units (2,063 MW) in 2007. In addition, as of
31 December 2007, Clipper had approximately 1,500 units (3,750 MW) in contingent
orders and joint development / contingent sale agreements.
Clipper's customer base includes some of the largest, most experienced and
sophisticated power generators in the wind industry, all with substantial
operating experience with most major turbine brands. Several sale agreements
originate from customer repeat orders.
MANUFACTURING AND ASSEMBLY
In 2007, Clipper's first full year of production, a total of 137 turbines (343
MW) were completed at Clipper's Cedar Rapids manufacturing and assembly
facility, compared to eight produced in 2006.
Clipper assembles machine base and hub assemblies at its facility in Cedar
Rapids, Iowa. Following a decision in mid-2006 to bring assembly in-house in
order to assure high quality production, Clipper also assembles drivetrains in
Cedar Rapids. Components used in these key assemblies are fabricated to Clipper
design specifications by outside suppliers; Liberty towers and blade sets, also
built to Clipper specifications by outside fabricators, are transported directly
to the wind project sites.
Clipper's combined engineering, procurement and quality team nearly doubled,
increasing to 136 employees by year end. In December, the Group completed the
commissioning of a second drivetrain test station in its state-of-the-art
testing facility. Clipper has plant capacity and equipment, a trained workforce
and processes in place to assemble over 400 turbines per year, with potential
for further capacity extensions at the Cedar Rapids facility.
On 31 March 2008, year to date production was tracking to plan, with 85
drivetrains assembled at the Cedar Rapids plant. Turbine production is paced by
the production of drivetrains; thus drivetrains produced year to date indicate
plant capacity utilisation of 20-30 turbines per month. Production ramp up was
significant over the first quarter of 2008 with 34 drivetrains assembled in the
month of March.
SUPPLY CHAIN
Clipper has expanded and strengthened its global supply chain capability. This
organisation is composed of quality engineers allocated at key component
suppliers, lean manufacturing experts (who work to improve suppliers'
efficiency) and strategic sourcing experts.
Clipper has broadened its component sources in a number of areas identified as
critical earlier in the financial year. At 31 December 2007, the Group had
contracts and/or purchase orders covering approximately 90% of key components
with respect to 2008 production. Key components represented approximately 70% of
Clipper's turbine component costs.
Approximately $181 million in contractual commitments under long term supplier
contracts were outstanding at the end of 2007. Most of these commitments were
for turbine components needed to support Clipper's growing book of orders.
The number and breadth of component suppliers was expanded in 2007 and the
average number of vendors for key components nearly doubled compared to 2006.
The global supply chain includes suppliers located in Europe, Asia, North and
South America.
The Group is starting to see the benefits of volume purchasing and economies of
scale. Average costs for key turbine components showed an improving trend, with
average costs starting to flatten off in the last six months of 2007.
Component quality control remains a key focus for Clipper. Production in 2007
was negatively affected by supplier quality deficiencies affecting Liberty's
high speed pinion cartridge and drivetrain secondary stage. These have been
addressed and the Group continues to ship turbines which have been quality
approved following testing in Clipper's new drivetrain test facility and
advanced quality control processes. From a combined total of 145 turbines
produced in 2006 and 2007, 63 required drivetrain remediation work. Substantial
completion of Clipper's remediation programme is expected in the third quarter
2008 with completion dates driven by factors including weather conditions and
crane scheduling.
FIELD SERVICES
Based on observations made during initial operation of the turbines and on-going
rotor blade testing, the Group is implementing a rotor blade reinforcement. This
activity is being co-ordinated with the drivetrain remediation programme for
efficient utilisation of field crews and equipment to minimise costs.
Approximately 260 rotors (780 blades) will be reinforced, including
approximately 150 rotors (450 blades) already delivered to customers that will
be reinforced in the field.
As at 31 December 2007, a total of 60 turbines were installed at customer's
project sites, including 8 installed in 2006. The remediation programme is
underway and as at 4 April 2008, Clipper had fully remediated 18 installed
turbines.
TECHNOLOGY
During 2007 Clipper launched Project Britannia, with the objective to develop
Clipper's 7.5MW MBE offshore turbine. The MBE turbine advances the Clipper
technology platform towards an offshore-purpose designed turbine specifically
formulated to meet the needs of the forecasted upsurge in European offshore wind
development in 2011 and 2012.
In September 2007, One NorthEast, the Regional Development Agency for the North
East of England, agreed on a package of support of �5 million for the project.
The package includes access to a state-of-the-art turbine assembly facility,
with a total of 1,800 square meters of offices and assembly bays. Clipper's
building is located in Blyth Harbour, North East England, strategically located
to serve the offshore turbine development zones and their related load centres.
The New and Renewable Energy Centre (NaREC) is adjacent to Clipper's building
and will provide test facilities for blades, drivetrains and generators.
Liberty's intellectual property has gained further advantage through the award
of one US patent and one European patent in 2007, with a number of additional
patents pending.
WIND RESOURCE PORTFOLIO
In September 2007, Clipper commenced negotiations with Hemeretik, the Spanish
construction and real estate group, to combine the renewable energy assets held
by Helium, their wholly-owned subsidiary, with the wind development resources of
Clipper Windpower Development, to form Clipper Capital and Generation
("CAPGEN").
It is proposed that CAPGEN will initially be 72% owned by Clipper and 28% by
Hemeretik, operating a global renewable energy development business with a wind
resource development portfolio in excess of 10,500 MW. CAPGEN's portfolio will
be segmented into three stages of development: approximately 340 MW advanced
stage, 6,500 MW medium stage and 3,700 MW early stage.
CAPGEN's wind portfolio will be located predominantly in the US, one of the
fastest growing wind markets in the world. Hemeretik are contributing assets
located in Spain, other European countries and Latin America.
The new group will be managed by an experienced international development team,
led by Pedro Barriuso. Mr. Barriuso has led Helium's development in 2007, and
was previously the head of Iberdrola Renewables from 2002 to 2006, where he
helped to create the world's largest international wind development company.
CAPGEN will develop, finance, build, own and operate wind energy projects
globally and will benefit from a long-term supply agreement on market terms for
Clipper's Liberty turbines and subsequent advanced turbines.
The planned financing of CAPGEN will accelerate project acquisition and
development, enable long-term ownership interest in power generating assets and
establish another major customer for Clipper turbines. In addition, CAPGEN will
provide another channel to facilitate the entry for Clipper turbines in the
established and growing European market while allowing Clipper to focus its
resources on advancing turbine technology and expanding its manufacturing
capacity and global presence.
HUMAN RESOURCES
The Group's employee base and overall management capability was strengthened in
all areas, with total headcount increasing to over 577 at year-end 2007 compared
to 314 at the end of 2006.
Manufacturing workforce has also increased, with the number of employees located
in Clipper's Cedar Rapids manufacturing and assembly facility almost doubling to
296 at the end of 2007.
There have also been significant increases in experienced managerial,
professional and technical personnel. Clipper's combined engineering,
procurement and quality teams increased to 136 compared to 70 employees at the
end of 2006.
CASH AND WORKING CAPITAL LEVELS
After the year end the Company announced that it expected a strain on working
capital in early 2008 due to 2007 losses, delay in completion of a 40-turbine
turnkey construction contract, and remediation programme costs. In response,
certain major institutional shareholders agreed to subscribe for 4,692,220 new
shares at 537.5p per share, raising gross proceeds of approximately �25.2
million (approximately $50 million). The issue of new shares is subject to
fulfillment of various conditions including the approval by shareholders at a
General Meeting of the Company to be held on 18 April 2008. Subject to
fulfillment of these conditions it is anticipated that these shares will be
issued on 21 April 2008.
On 24 March 2008 Clipper also arranged a $60 million bank-administered secured
term loan credit facility to be funded by a customer.
On 8 April 2008, Clipper entered into an agreement with One Equity Partners, the
private equity arm of JPMorgan Chase that, subject to the fulfillment of various
conditions, will result in an equity investment of $150 million in Clipper. One
Equity Partners will subscribe for approximately 15.8 million(10) new shares at
a price equal to the lower of 480p per share and the volume weighted average
trading price of the shares over the five business days preceding 4 May 2008,
raising gross proceeds of approximately �76 million ($150 million). In the event
that the subscription price is less than 480p per share Clipper may elect not to
proceed with the transaction. The new funds will be used to finance Clipper's
ongoing working capital requirements and strategic supply chain initiatives.
RISKS AND UNCERTAINTIES
There are a number of potential risks which could have a material impact on the
Group's long term performance and could cause actual results to differ
materially from expected results. Risk factors may change over time as the
business, market and regulatory environments evolve. Key risks and uncertainties
are described below.
SUPPLY CHAIN
Wind turbines are assembled from components fabricated to Clipper design
specifications by outside suppliers. There are a number of specific risk factors
associated with this supply chain as the manufacturing rate increases. Certain
components have only one or a small number of suppliers and industry-wide supply
is tight for components such as large bearings.
There are minimal levels of safety stock on hand for some key components to
protect against supplier delivery schedule disruptions. Adverse weather
conditions can also affect delivery times of components to the Cedar Rapids
plant or to wind project sites. Suppliers' inability to produce components
according to Clipper's design and specifications affected Clipper's production
in 2007. Whilst the supplier quality issues affecting production in 2007 have
been resolved, potential future quality deficiencies in component supply could
affect turbine production.
These risk factors could result in delayed shipments to Clipper's customers due
to delays in component shipments from suppliers. Delayed shipments to customers
could result in a reduced ability to meet sales projections and possibly result
in liquidated damage payments, thus affecting earnings and cash flow. The Group
has taken a number of steps to mitigate these risks, such as expanding the
number of suppliers and using established vendors for the fabrication of key
parts. Contracts with Clipper customers also typically include limits on
liquidated damage payments.
In 2007, Clipper nearly doubled its average number of vendors for key
components, which make up approximately 70% of turbine component costs. Clipper
also pursues multiple-year supplier orders and pre-stocking of certain
components ahead of the start of production. To this effect, at 31 December 2007
Clipper had contracts and/or purchase orders covering approximately 90% of key
components for its expected 2008 production. The Group also now bases quality
engineers at certain suppliers' manufacturing facilities in order to identify
and correct quality issues early in the fabrication process. Further, during the
year, Clipper also commissioned two drivetrains test stations in its
state-of-the-art testing facility in Cedar Rapids to allow for robust and
extensive testing on design and manufacturing changes.
TECHNOLOGY RISK
The Clipper Liberty wind turbine is a new design, incorporating technological
improvements to be efficient, cost effective, reliable, and easier to erect and
maintain than prior generations of wind turbines.
The turbine was designed by a team with substantial experience of introducing
wind turbines to the market. In addition, certification by Germanischer Lloyd
indicates independent verification of the design capabilities. However, there is
a risk that the actual performance of the turbine could be lower than
anticipated, through design, manufacturing or servicing deficiencies. These risk
factors could lead to a reduced cash flow and earnings impact to the Group,
including penalties under warranty agreements with customers, and could also
lead to reduced future turbine sales. Clipper's 2007 financial results were
negatively affected by a decision to reinforce the turbine's blade design for
operational conditions.
The Group has taken a number of actions to mitigate technology risk. The
Medicine Bow prototype turbine, which became operational in April 2005, has
received substantial testing by Clipper and technical review from customers. The
Group has emphasised manufacturing quality through ISO certification and the
hiring of a large quality assurance team. The services team responsible for
turbine installation, commissioning, operation and maintenance has received
extensive training and is led by managers with substantial wind turbine fleet
experience. Clipper's financial exposure to customer warranties for turbine
components is also somewhat mitigated by underlying warranties provided by
component suppliers. Clipper commissioned two drivetrain test stands in its test
facility in Cedar Rapids in order to identify and correct quality issues before
shipment to customer sites. Additionally, Clipper uses six sigma processes such
as Root Cause Analysis and failure mode effects and analysis to anticipate and
resolve quality deficiencies.
CUSTOMER ORDERS
During 2007, Clipper successfully secured a mix of firm and contingent customer
sales orders for wind turbine deliveries up to and including 2011. The Group
plans production and component purchase commitments based on an assessment of
turbine assembly capacity, component availability, and a combination of firm and
contingent customer orders. Earnings and cash flow could be reduced due to lower
sales volumes and potentially higher inventory levels should some of the
customer orders, such as turbine sale options fail to materialise. Furthermore,
the company's cash liquidity could be affected if customers fail to meet
contractual payment commitments whilst supplier payments are required due to
order lead times.
Customers' site project overall readiness for items such as interconnection may
impact turbine commissioning schedules, as well as weather conditions and road
restrictions. Under Clipper's revenue recognition policy, delays in
commissioning may affect revenue and earnings recognition.
The following steps have been taken to reduce these risks. The Group seeks to
secure an order backlog for turbines several years in advance and has
successfully obtained orders from well-financed, creditworthy customers. A
substantial amount of customer orders through 2008 are firm commitments, with
contingent customer agreements under negotiation to replace existing contingent
orders should they fail to materialise. Customer delivery dates are planned
around the expected turbine supply availability and the ability to install the
turbines at the project site. Component purchase commitments are monitored
against production and sales delivery projections, and most purchase orders or
contracts with suppliers include advance cancellation clauses. For
non-construction related contracts, customer orders are typically secured with
advance deposit payments to Clipper generally allowing the Company to receive up
to 90% of the turbine sales price prior to commissioning.
LEGISLATION
The wind energy industry is supported in many markets through a variety of
financial incentives offered by government and regulatory bodies. If the
availability of such incentives was reduced or removed this would be likely to
have an adverse effect on the Company's business. In the US such an incentive,
the Production Tax Credit ("PTC"), is due to expire on 31 December 2008. The PTC
has been in effect continuously since 1992 and was last renewed trough the end
of 2008. The Company expects that the PTC will be extended.
Clipper has directed its efforts along with industry and trade associations to
work and lobby with governments to facilitate the renewal of the PTC.
Additionally, none of Clipper's firm orders for delivery post 2008 are
contingent upon the PTC renewal. The Company is also looking at projects that
are viable on a standalone basis. A total of 25 US states currently have their
own separate legislative incentives under the Renewable Portfolio Standard (RPS)
system, which requires utilities to generate a certain percentage of power from
renewable energy sources. As Clipper spreads its presence across the globe,
country specific regulatory risks will be further mitigated.
Business and Financial Review
Financial Review
The results for the Group for 2007 and the comparative year have been stated in
accordance with International Financial Reporting Standards ("IFRS").
As more fully described in the accompanying financial statements, results for
the year ended 31 December 2007 include provisions for turbine remediation, loss
making contracts, warranties, inventory obsolescence and liquidated damages on
late turbine deliveries. In total, the 2007 full year loss of $192.5 million
includes $107.1 million of expense for these non-recurring items.
Revenue for the year ended 31 December 2007 increased to $23.9 million versus
$7.3 million in 2006 largely reflecting the sale of the Group's first nine wind
turbines. Revenue from the sale of wind project development rights was $378,000
in 2007 compared to $7.2 million in 2006, reflecting the Company's strategy of
developing rather than selling wind project development rights.
Results for 2007 were significantly affected by delayed revenue recognition on
turbine shipments. Revenues for turbine sales are typically recognised upon
commissioning. Revenues related to Clipper's 40-turbine turnkey construction
contract are dependent on commissioning and on the satisfaction of certain
customer acceptance provisions. In 2007, Clipper recognised revenue on nine
turbines, although a cumulative total of 145 turbines had been produced as at 31
December 2007, including eight shipped at the end of 2006. Revenue recognition
on the remaining 136 turbines is expected in 2008, with the delay due to
Clipper's drivetrain remediation and blade reinforcement schedule, as well as
additional factors such as a normal 4-6 week time lag between production and
commissioning and customer construction / turbine installation scheduling.
Cost of sales increased by $154.0 million to $170.2 million in 2007 (2006: $16.2
million). In addition to the material and labour costs to complete the
manufacture of nine turbines, the Group incurred one time charges or provisions
of $49.8 million (2006: $nil) for turbine remediation, $30.5 million (2006:
$nil) for loss-making contracts, $20.1 million (2006:$nil) for warranties, $2.3
million for inventory obsolescence (2006: $3.9 million) and $4.4 million in
liquidated damages for late turbine deliveries (2006: $nil). These represent a
total of $107.1 million in non-recurring items (2006: $3.9 million). The loss
contract accruals relate mainly to two construction-related contracts, and
warranty provisions are largely due to contracts where future costs will likely
exceed expected benefits. The turbine remediation costs include costs incurred
and anticipated to address drivetrain remediation plus high speed pinion, blade
reinforcement and minor component upgrades. Cost of sales also includes
underabsorbed factory and field costs.
Project development expense was $9.9 million in 2007 (2006: $9.7 million) and
represents costs associated with wind project development activities.
Research and development expense was $10.5 million for the year ended 31
December 2007 (2006: $6.9 million). Research and development expense includes
engineering costs for both advanced technology and support for ongoing
operations.
Administrative expenses for the year ended 31 December 2007 totaled $29.8
million (2006: $19.7 million). The $10.1 million increase over the prior period
was primarily due to higher employee costs to support the growth of the Group.
The Group recorded a gain on sale of subsidiary undertakings in the year of $2.0
million which was mainly attributable to the sale of a Mexican wind project.
This compares to a $19.5 million gain made on the sale of a 50% interest in four
joint venture companies and an 85% interest in Silver Star I Power Partners LLC
in 2006.
The loss before tax for 2007 was $191.9 million (2006: $19.9 million), including
the aforementioned non-recurring items and the impact of delayed revenue
recognition. 2007 earnings were also affected by unabsorbed manufacturing and
field service costs, learning curve and other start-up types of costs related to
the ramp up of employees and production to support the ability to assemble 20-30
turbines per month by the beginning of 2008.
At 31 December 2007, the Group's cash balance of $114.4 million compared to
$218.8 million as at 31 December 2006. The year-end 2007 cash balance was $104.4
million lower than the prior year mainly due to the net loss for the year and
the build-up of inventories and other current assets, net of increases in trade
and other payables and payments received in advance.
Inventories totalled $523.2 million at 31 December 2007 (2006: $127.2 million).
The $523.2 million balance includes $325.2 million (2006: $38.6 million) of
development and construction projects held for sale, which includes turbine
assemblies and components that have been shipped to third party customer project
sites. The inventories balance also includes $185.7 million (2006:$88.6 million)
in material and components, plus $12.3 million (2006:$nil) in finished goods.
The $396.0 million increase since year-end 2006 reflects the significant
increase in production activity in 2007 versus the prior year, combined with the
aforementioned delay in revenue recognition. Inventory reserves totaled $83.5
million (2006: $2.1 million) as of year end 2007 and were mainly due to turbine
remediation and loss making contracts.
Prepaid inventory totaled $52.5 million at 31 December 2007, compared to $32.9
million as of 31 December 2006. Prepaid inventory includes advance payments to
suppliers prior to the shipment of components.
Payments received in advance represent turbine sale deposits received from
customers. The current portion of payments received in advance totaled $531.7
million at 31 December 2007, compared to $157.2 million as of 31 December 2006.
Non-current payments received in advance totaled $91.7 million as of 31 December
2007, compared to $21.9 million at 31 December 2006. The $444.3 million combined
increase since 31 December 2007 was due to the receipt of customer milestone
payments on new and existing orders.
In order to address the 2007 net loss and alleviate some anticipated working
capital strain in early 2008, on 25 March 2008 Clipper announced that certain
major institutional shareholders had agreed to subscribe for 4,692,220 new
shares at 537.5p per share, raising gross proceeds of approximately �25.2
million ($50 million). The issue of new shares is subject to various conditions
including approval by shareholders at a General Meeting of the Company to be
held on 18 April 2008. In addition, in March 2008 Clipper arranged a $60 million
bank-administered secured term loan credit facility to be funded by a customer.
On 9 April 2008, it was announced that One Equity Partners, the private equity
arm of JPMorgan Chase had agreed, subject to fulfillment of various conditions,
to invest �76 million ($150 million) in the Company in exchange for
approximately 15.8 million shares (assuming a subscription price of 480p per
share and exchange rate of �/$1.9764) at a price equal to the lower of 480 pence
per share and the volume weighted average trading price of the shares over the
five business days preceding 4 May 2008. The agreement is subject to the
fulfillment of customary conditions including the receipt of US anti-trust
approval and the approval by shareholders at a General Meeting of the Company to
be held on 6 May 2008.
Consolidated income statement
For the year ended 31 December 2007
($'000s except loss per share Year ended Year ended
amounts)
31 December 2007 31 December 2006
Revenue 23,869 7,264
Cost of Sales (170,221) (16,195)
-------------- --------------
Gross loss (146,352) (8,931)
Project development (9,896) (9,664)
Research and development (10,456) (6,921)
Administrative expense (29,770) (19,717)
Other operating expense (2,066) (67)
Share of loss from joint (324) (89)
ventures
Profit on sale of subsidiary 2,027 19,527
undertakings -------------- --------------
Operating loss (196,837) (25,862)
Investment revenue 7,145 6,154
Finance costs (2,180) (156)
-------------- --------------
Loss before tax (191,872) (19,864)
Income tax (608) (458)
-------------- --------------
Loss for period (192,480) (20,322)
-------------- --------------
Loss per share-basic and c (179) c (21)
diluted -------------- --------------
Consolidated balance sheet
As at 31 December 2007
2007 2006
$'000s $'000s
-------- --------
Non-current assets
Intangible assets 710 444
Property, plant and equipment 32,889 25,663
Available for sale investments 7,744 1,881
Investments in joint ventures 33 97
Other assets 548 200
--------------- ---------------
Non-current assets 41,924 28,285
Current assets
Inventories 523,195 127,197
Prepaid inventory 52,493 32,875
Trade and other receivables 3,566 11,869
Other current assets 8,055 6,748
Cash and cash equivalents 114,420 218,814
--------------- ---------------
Current assets 701,729 397,503
--------------- ---------------
Total assets 743,653 425,788
--------------- ---------------
Current liabilities
Payments received in advance 531,652 157,218
Trade and other payables 88,553 46,463
Provisions 4,044 -
Income tax payable 402 436
Obligations under finance 250 180
leases --------------- ---------------
Total current liabilities 624,901 204,297
--------------- ---------------
Non-current liabilities
Payments received in advance 91,715 21,930
Obligations under finance 482 571
leases
Provisions 13,341 -
Other non-current liabilities 902 36
--------------- ---------------
Total liabilities 731,341 226,834
--------------- ---------------
Net assets 12,312 198,954
--------------- ---------------
Equity
Share capital 19,772 19,526
Share premium account 188,982 187,513
Other reserves 51,739 48,448
Retained loss (248,181) (56,533)
--------------- ---------------
Total equity 12,312 198,954
--------------- ---------------
Consolidated cash flow statement
For the year ended 31 December 2007
Year ended Year ended
31 December 2007 31 December 2006
$'000s $'000s
-------- --------
Cash flows from operating activities
Operating loss for the period (196,837) (25,862)
Adjustments for:
Depreciation and amortisation 9,148 3,613
Loss on disposal of fixed assets 363 -
Share-based payments 3,915 2,399
Loss from investments in joint 64 89
ventures
Gain on sale of subsidiary (636) (8,075)
undertakings
Decrease/(increase) in receivables 8,547 (10,110)
Increase in inventories (393,408) (118,850)
Increase in other current assets (20,924) (35,935)
Increase in trade and other payables 38,060 37,728
Increase in provisions for 16,572 -
liabilities and charges
(Decrease)/increase in income taxes (33) 436
payable
(Decrease) / increase in other (874) 24
non-current liabilities
Increase in other assets (348) (85)
Increase in payments received in 444,219 178,825
advance ------------ -------------
Net cash (used in)generated by (92,172) 24,197
operating activities
Income taxes paid (301) (1,048)
Interest paid (119) (91)
Exceptional finance costs (2,061) (65)
------------ -------------
Net cash flows from operating (94,653) 22,993
activities
Cash flows from investing activities
Interest received 6,901 5,591
Investment in subsidiaries and joint (5,863) (12,868)
ventures
Proceeds from sale of subsidiary 636 19,141
undertakings
Purchase of property, plant and (12,487) (14,172)
equipment
Additions to intangible assets (271) (140)
------------ -------------
Net cash used in investing activities (11,084) (2,448)
------------ -------------
Cash flows from financing activities
Capital element of finance lease (213) (90)
payments
Proceeds from exercise of share 1,715 11,714
options and warrants
Proceeds from issues of share capital - 85,047
Proceeds from issue of share capital - (1,768)
------------ -------------
Net cash provided by financing 1,502 94,903
activities ------------ -------------
Net (decrease)/increase in cash and (104,235) 115,448
cash equivalents
Cash and cash equivalents at 218,814 103,391
beginning of period
Effect of changes in foreign exchange (159) (25)
rates ------------ -------------
Cash and cash equivalents at end of 114,420 218,814
period ------------ -------------
Consolidated statement of changes in equity
For the year ended 31 December 2007
Share Share Revaluation Other Foreign Retained Total
capital premium reserve reserves currency loss equity
reserve
$'000s $'000s $'000s $'000s $'000s $'000s $'000s
-------- -------- -------- -------- -------- -------- --------
Balance at 1 January 17,443 104,108 - 37,219 (13) (36,813) 121,944
2006 ------ ------- ------- ------ ------ ------ ------
Net loss for the - - - - - (20,322) (20,322)
period
Exchange differences - - - - (19) - (19)
arising on translation
of foreign currency
recognised directly in
equity
Share options and - - - 12,399 - - 12,399
warrants issued
Cost of options and - - - (494) - - (494)
warrants issued
Issuance of share 1,797 83,276 - - - - 85,073
capital
Cost of issuance of - (1,274) - - - - (1,274)
share capital
Tax on warrants - - - (307) - - (307)
Revaluation of - - 265 - - - 265
available for sale
asset
Employee share option
scheme:
Exercise of options 286 1,403 - (602) - 602 1,689
------ ------- ------- ------ ------ ------ ------
Balance at 31 December 19,526 187,513 265 48,215 (32) (56,533) 198,954
2006
Net loss for the - - - - - (192,480) (192,480)
period
Exchange differences - - - - (99) - (99)
arising on translation
of foreign currency
recognised directly in
equity
Reversal of tax - - - 307 - - 307
related to warrants
Employee share option
scheme:
Exercise of options 246 1,469 - (832) - 832 1,715
Issuance of options - - - 3,915 - - 3,915
------ ------- ------- ------ ------ ------ ------
Balance at 31 December 19,772 188,982 265 51,605 (131) (248,181) 12,312
2007 ------ ------- ------- ------ ------ ------ ------
Notes to Financial Statements
1. Announcement based on audited accounts
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the year ended 31 December 2007, but is derived
from those accounts. Statutory accounts for 2006 have been delivered to the
Registrar of Companies and those for 2007 will be delivered following the
Company's annual general meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under s. 237(2) or
(3) of the Companies Act 1985.
While the financial information included in this preliminary announcement has
been prepared in accordance with the recognition and measurement criteria of
International Financial Reporting Standards ("IFRS") as adopted by the European
Union ("EU"), this announcement does not itself contain sufficient information
to comply with IFRS. The Company expects to publish full financial statements
that comply with IFRS in April 2008, and those accounts will contain full
accounting policies under IFRS.
2. First time adoption of IFRS
The Group's date of transition to International Financial Reporting Standards
("IFRS") is 1 January 2006 and all comparative information in the consolidated
financial statements has been restated to reflect the Group's adoption of IFRS,
except where otherwise required or permitted by IFRS 1- First Time Adoption of
International Financial Reporting Standards.
Upon transition to IFRS, the Group has taken advantage of the exemption
contained in IFRS 1 to apply IFRS 2 Share-based payment to equity instruments
issued after 7 November 2002 that were unvested at 1 January 2005.
3. Critical accounting judgments and key sources of estimation uncertainty
In applying the Group's accounting policies, the directors are required to make
judgments, estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other factors that
are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
Critical judgments in applying the group's accounting policies
The following is the critical judgment that the directors have made in the
process of applying the Group's accounting policies and that has the most
significant effect on the amounts recognised in financial statements.
Revenue recognition
Turbine revenue is recognised when the turbines have been commissioned or
contractual obligations are considered complete such that the Group has
transferred the risks and rewards of ownership. As many of the sales contracts
require the company to perform remediation procedures on delivered turbines as
at 31 December 2007, despite in some cases legal title having passed to the
customers, the Group was required to consider if the true risk and reward of
ownership had or had not been transferred.
In making its judgment, the directors considered the detailed criteria for the
recognition of revenue from the sale of turbines set out in IAS 18 Revenue and,
in particular, whether the Group had transferred to the buyer the significant
risks and rewards of ownership of the goods. Following the detailed
quantification of the Group's liability in respect of rectification work, the
Group was only able to satisfy itself that the risk and reward had passed on
$23.2 million of turbine sales in the year ended 31 December 2007.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key
sources of estimation uncertainty, at the balance sheet date that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
The following are the key assumptions concerning the future, and other key
sources of estimation uncertainty, at the balance sheet date that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
Inventory provisions
The carrying value of inventory has been reduced by $49.8 million in the year
ended 31 December 2007 (2006: $nil) to reflect the estimated future costs of
remediating certain components, namely wind turbine blades and gearboxes.
Included within the calculation of the provision are estimates of labor costs,
crane costs, transportation costs, material costs, and time to complete, which
is in itself dependent upon a number of unknown and uncontrollable factors such
as the weather. The Company conducted a detailed study of the costs to remediate
the turbine components and continues to monitor the programme closely but could
be required to make positive or negative adjustments to the provision in future
periods.
Provisions for loss-making contracts
If it is determined that the costs of meeting contractual obligations exceed the
economic benefit arising under such contracts, the resultant net loss under the
contract is recognised immediately. The calculation to determine the loss
includes an estimate of the cost to complete a project and the cost of other
associated and unavoidable obligations such as late delivery payments, which are
dependent on an estimate of the time to complete. The Company provided $30.5
million against inventory work in progress in the current period relating to
projects on which it is believed the contractual obligations exceed the economic
benefit. Such losses have arisen chiefly as a result of the delays and issues
associated with turbine remediation (see above).
Warranty provisions
The Group has established provisions for the future costs estimated under
standard turbine warranties. These provisions are based on estimates of future
costs to repair the turbines and involve substantial levels of judgment due to
the limited operating history experienced by the Group to date. In 2007, due to
the need to remediate certain turbine components, the Group estimated that on a
number of projects the costs related to the future warranties was higher than
the economic benefit by an amount that totaled $20.1 million. In coming to this
conclusion, the Group carried out a detailed project by project study of all
warranties. However, given the uncertainties in the calculation, the Group
could be required to adjust the provision either in the Group's favour or to
its detriment in future periods.
Recoverability of development projects held for sale
The Group tests for recoverability of costs compared with the carrying value of
development projects held for sale using relevant facts and circumstances to
create an estimate of future cash flows to determine the appropriate carrying
values of development projects. Where costs exceed the carrying value of the
project value, a net realisable value adjustment is booked to the carrying value
of the work in progress recognised to ensure the value is accurately reflected
at the recoverable amount of the asset. Adjustments will be made in future
periods if future market activity indicates that the net realisable value of the
projects is lower than the value of the asset recognised.
Share-based payments
The Group uses the Black-Scholes option pricing model in determining the fair
value of options granted to employees and non-employees under the Group's
equity-based compensation plan. The Company recognised an expense of $3.9
million in 2007 (2006: $2.4 million) on the options, however the model
incorporates various assumptions, the alteration of which may have lead to a
different charge. Key assumptions include the volatility of the Company's share
price, the rate of forfeiture of shares, the vesting period of the share
options, dividend yield, risk-free interest rate and expected life.
4. Loss per share
The calculation of loss per share is based on the following losses and numbers
of shares.
Year ended 31 Year ended 31
December 2007 December 2006
$'000s $'000s
-------- --------
Loss for the financial year (192,480) (20,322)
------------ ------------
2007 2006
Number of Number of
shares shares
Weighted average number of
shares:
For basic earnings per share 107,689,464 98,640,635
Share options and warrants 12,012,271 15,263,727
outstanding ------------ ------------
Shares for dilution 119,701,735 113,904,362
calculation ------------ ------------
Loss per share:
Basic and diluted c (179) c (21)
------------ ------------
Unexercised share options and warrants to purchase 12,012,271 shares exclude
100,006 share options out-of-the-money in 2007 (2006:nil).
Potential ordinary shares in the form of warrants and options are antidilutive
and therefore are excluded from the calculation of diluted earnings per share.
As a result, the basic and diluted loss per share is consistent.
5. Segment Information
Year ended Wind project Turbine Corporate Total
development technology and
31 December 2007 manufacturing
$'000s $'000s $'000s $'000s
-------- -------- -------- --------
Income statement
-Revenue 429 23,440 - 23,869
-Net loss (44,714) (123,035) (24,731) (192,480)
Balance sheet
-Assets 50,628 563,006 130,019 743,653
-Liabilities (34,816) (687,698) (8,827) (731,341)
Capital expenditure 1,906 13,394 1,432 16,732
Non-cash items:
-Depreciation and 763 7,733 652 9,148
amortisation
-Share-based payments 89 564 3,262 3,915
-Inventory and warranty 33,021 69,746 - 102,767
provisions --------- ---------- --------- --------
Year ended
31 December 2006
Income statement
-Revenue 7,264 - - 7,264
-Net loss 13,157 (19,589) (13,890) (20,322)
Balance sheet
-Assets 52,803 146,594 226,391 425,788
-Liabilities (5,108) (216,930) (4,796) (226,834)
Capital expenditure 4,773 11,605 872 17,250
Non-cash items:
-Depreciation and 530 2,866 217 3,613
amortisation
-Share-based payments 82 144 2,173 2,399
-Inventory and warranty 3,885 - - 3,885
provisions --------- ---------- --------- --------
All of the segment revenue reported above is from external customers located in
North America. One customer accounted for 85.8% (2006: 96.1%) of revenue for the
year ended 31 December 2007. Revenue for the prior period was attributable to a
different customer.
Segment assets consist primarily of operating and invested cash, inventories,
property, plant and equipment, intangible assets and investments at fair value.
Segment liabilities consist largely of payments in advance received for future
turbine deliveries. Inventory provisions reduce the carrying value of inventory
for the estimated future costs of wind turbine blade and gearbox remediation,
loss-making contracts and excess and obsolete inventory.
6. Loss before tax
During the year the Group encountered issues relating to supplier quality issues
and blade design. This has resulted in significant one off costs in the period,
primarily relating to remediation work and associated costs resulting from the
delay in meeting contractual obligations. These one off costs are summarised
below:
Year ended Year ended
31 December 2007 31 December 2006
Inventory write down $'000s $'000s
-------- --------
-inventory write down for loss 30,540 -
making contracts
-provision for turbine remediation 49,846 -
-provision for inventory 2,320 3,885
obsolescence ------------- ---------------
Total 82,706 3,885
Provision for warranties 20,061 -
Accrual for liquidated damages 4,353 -
------------- ---------------
107,120 3,885
------------- ---------------
The write down for loss making contracts relates to wind projects for which
costs will exceed contractual economic benefit. The inventory provision for
turbine remediation relates to the cost to repair blades and gearboxes on wind
turbines held in inventories. The provision for inventory obsolescence pertains
to the difference between inventory's carrying value and net realisable value on
certain un-certified products. The provision for warranties relates to contracts
where the expected cost of the warranty exceeds the economic benefits
anticipated to arise from the contractual arrangements. The accrual for
liquidated damages relates to the contractual penalties arising from the late
delivery on certain contracts.
Year ended Year ended
31 December 2007 31 December 2006
$'000s $'000s
-------- --------
Loss before tax is also stated
after charging / (crediting):
Depreciation and amounts written
off property, plant and equipment:
-owned 8,906 3,442
-held under finance leases 237 158
Impairment of trade receivables 195 -
Cost of inventories recognised as 20,783 -
an expense
Write back of inventories (1,797) -
recognised as a credit
Write off of amounts due from - 162
joint venture
Amortisation of patents and trade 5 13
marks
Research and development 10,456 6,921
Operating lease rentals:
-plant and machinery 1,255 441
-other 671 482
7. Inventories
31 December 2007 31 December 2006
$'000s $'000s
-------- --------
Finished goods 12,284 -
Less: Finished goods reserve - -
--------------- --------------
Net Finished goods 12,284 -
--------------- --------------
Material and components 196,469 90,648
Less: Material and components reserve (10,794) (2,087)
--------------- --------------
Net Material and components reserve 185,675 88,561
--------------- --------------
Development and construction projects 397,901 38,636
held for sale
Less: Development and construction (72,665) -
projects held for sale reserve --------------- --------------
Net Development and construction 325,236 38,636
projects held for sale reserve --------------- --------------
Total net inventory 523,195 127,197
--------------- --------------
Development projects held for sale include both construction and development
costs together with all turbine assemblies and components which have been
shipped to the development site. Development and construction projects include
third party customer project sites.
8. Payments received in advance
Current Non-current Total
$'000s $'000s $'000s
-------- -------- --------
At 1 January 2006 323 - 323
Customer deposits received 156,895 21,930 178,825
------------ ----------- -----------
At 1 January 2007 157,218 21,930 179,148
Customer deposits received 397,141 69,785 466,926
Recognised as revenue in the (22,707) - (22,707)
period ------------ ----------- -----------
At 31 December 2007 531,652 91,715 623,367
------------ ----------- -----------
Payments in advance reflect consideration from customers for manufacture and
delivery of wind turbines.
9. Contingencies
Contingent asset
In 2006, the Group sold a 50% membership interest in four project limited
liability companies ("LLCs") and an 85% membership interest in one project LLC.
In the event certain notice-to-proceed conditions in the contracts are
satisfied, the Group will receive additional contingent purchase price
consideration for the project companies up to a maximum of $33.3 million (2006:
$33.3 million) for the first four project companies with payments on the fifth
based on the final generation capacity of the site. During the period, no
additional contingent purchase price consideration was received or receivable.
Contingent liability
In 2004, a former employee initiated litigation alleging various monetary claims
related to breach of an employment agreement and entitlement to 875,000 ordinary
shares of Clipper Windpower Plc at a purchase price of $0.25 per share. The
market price of the shares at 31 December 2007 was �7.14 or US$14.18. (2006:
�5.95 or US$11.63). During the period, the Company was notified that a judgment
was entered in favour of the plaintiff. The Company has filed an appeal and has
been advised by counsel that it is more likely than not that the Company will
prevail.
In January 2008, the former employee initiated related litigation claiming that
he had made an attempt to exercise the disputed options. Clipper did not
consummate the exercise because the case was still under appeal. The former
employee claims market value losses as a consequence of the shares not being
issued at the time of his attempt to exercise. The Company disputes the claim
and believes it is more likely than not that it will prevail.
In 2006, the Group sold part of its investment in five subsidiary undertakings.
It has retained an interest, either as a joint venture partner or investor in
each of these wind farm development projects. Each project was sold on the basis
that on completion, it would achieve a contractually-agreed capacity. If one of
the Group's projects has a lower capacity upon completion than that anticipated
at commencement, or falls short of other contractually-agreed commitments, the
Group is required to transfer a new project in its place or, failing that, the
Group is responsible for reimbursing its joint venture partner for any amounts
paid plus interest at LIBOR plus 2% up to a maximum of $4 million. The Directors
consider it remote that any payments will arise under this arrangement and,
accordingly, have recognised revenue based on their view of the probable outcome
of this transaction.
The Group has signed turbine supply agreements with customers that require the
Group to make payments to the buyers in the event the Group is unable to meet
certain conditions of the contracts relating to delivery, commissioning and
assembly dates in the ordinary course of business. The Group is also
contractually committed for liquidated damages in certain turbine supply
agreements if turbine availability does not meet minimum stated thresholds. The
specific terms vary by contract but, in general, the maximum potential future
payments under the guarantees are subject to daily and overall project limits.
Such costs are accrued once the agreed delivery date expires, as time passes and
in accordance with contractual terms.
10. Reconciliation of UK GAAP to IFRS
This is the first year that the Group has presented its financial statements
under IFRS as adopted by the EU. The following disclosures are required in the
year of transition. The last financial statements under UK GAAP were for the
year ended 31 December 2006 and the adoption date of IFRS was therefore 1
January 2007.
The adjustments to restate the results of the Group from UK GAAP to IFRS are
summarised below:
Reconciliation of Net equity under UK GAAP to Net equity under IFRS
1 January 2006 31 December 2006
$'000s $'000s
-------- --------
Net equity under UK GAAP 121,382 197,875
IAS 38: Intangible assets 272 407
IAS 31: Joint venture assets 292 407
IAS 39: Financial - 265
instruments-recognition and ------------- -------------
measurement
Net equity under IFRS 121,946 198,954
------------- -------------
Reconciliation of Net loss under UK GAAP to Net loss under IFRS
Year ended
31 December 2006
$'000s
Net loss under UK GAAP (20,880)
IAS 38: Intangible assets 136
IAS 31: Joint venture interests 115
IAS 12: Income taxes 307
-------------
Net loss under IFRS (20,322)
-------------
In addition to the above, the Group has made certain reclassifications on the
income statement. Cost of Sales now includes the cost of manufacturing and
servicing wind turbines as well as costs associated with the construction of
wind projects. Project Development and Research and Development expenses have
been reclassified from Cost of Sales to separate expense categories below Gross
Profit to reflect the key operations of the business.
11. Events subsequent to the balance sheet date
On 9 April 2008, it was announced that One Equity Partners agreed to invest �76
million ($150 million) in the Company in exchange for approximately 15.8 million
shares at a price equal to the lower of 480 pence per share and the volume
weighted average trading price of the shares over the five business days
preceding 4 May 2008. One Equity Partners will nominate two representatives to
Clipper's board of directors. The agreement is subject to the fulfillment of
customary conditions including the receipt of US anti-trust approval and the
approval by shareholders at a General Meeting of the Company to be held on 6 May
2008.
On 25 March 2008, the directors announced that a group of major institutional
shareholders, through a private placement, agreed to subscribe to 4,692,220 new
ordinary shares of the Company at a price per share of 537.5 pence raising gross
proceeds of �25.2 million (approximately $50 million). The new issue of shares
is subject to approval by shareholders at a General Meeting of the Company to be
held on 18 April 2008.
Also on 25 March 2008, the Group announced the arrangement of a $60 million
bank-administered secured term credit facility to be funded by a customer and
has secured the performance of certain Clipper obligations in order to
facilitate approximately $85 million of pre-delivery turbine payments from a
second customer.
In September 2007, the Group paid $200,000 for an option to purchase an interest
in a wind turbine tower company ("Northstar"). On 30 November 2007, the Group
exercised the option toward the purchase of the interest in Northstar. This
transaction closed in January 2008 and resulted in the Group obtaining a 37.5%
interest in Northstar at a cost of $2.1 million. The Group may be required to
invest an additional $1.1 million for a further interest in the company at a
future date. A separate agreement was executed with Northstar in November 2007
for the design of a wind turbine tower which required payments by the Group of
$120,000 in 2007. One of the primary shareholders in Northstar is the son of
Finn Hansen, a Clipper executive director.
--------------------------
(1) AWEA 2007 market report, January 2008
(2) One NorthEast the Regional Development Agency for the North East of England
(3) Million Barrel Equivalent of petroleum over machine life
(4) GWEC February 2008
(5) AWEA 2007 market report, January 2008
(6) GWEC February 2008
(7) The Rt. Hon. John Hutton MP, Secretary of State for Business, Enterprise &
Regulatory Reform "Partners in Europe" Energy Seminar, British Embassy
Conference Centre, Berlin, 10 Dec 2007
(8) Delivering Offshore Wind Power in Europe. Policy Recommendations for Large
Scale Deployment of Offshore Wind Power in Europe by 2020. European Wind Energy
Association, 2007
(9) AWEA 2007 market report, January 2008
(10) Assuming subscription price of 480p per share and exchange rate of �/
$1.9764
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR IAMTTMMMBMIP
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