CWP Clipper Reg S

    RNS Number : 1752A
  Clipper Windpower PLC
  30 July 2008
   


    


    CLIPPER WINDPOWER PLC - TRADING UPDATE
    Highlights:

    *     Turbines performing well with operating availability averaging in excess of 95%
    *     Remediation on track for completion in Q308
    *     New turbine production expected to exceed 750 MW (300 turbines) in 2008 and the production ramp-up tracking to plan, with 34
turbines produced in the last 4 weeks
    *     Orders continue to grow, with an additional 250 MW (100 turbines) of new orders since trading update in March 2008
    *     Increased remediation cost driving substantial 1H08 net loss; 2H08 estimated results approaching breakeven
    *     2009 EBIT margins will be impacted by recent doubling of steel prices; expect improvement in 2010 margins through higher pricing
and improved commercial terms
    *     June 30, 2008 cash in excess of $265 million; year-end 2008 balance expected to be slightly  higher than June 30
    *     Clipper has entered into a joint venture agreement with BP Alternative Energy on a 5,050 MW project improving on earlier CAPGEN
structure and fund raising effort

    London, (UK), Carpinteria, CA (USA) - July 30, 2008 Clipper Windpower Plc ("Clipper" or "the Company"), a rapidly growing manufacturer
of advanced wind turbines and developer of wind energy projects, is issuing this update ahead of its 1H08 preliminary results to be released
in September 2008.

    As part of the strategic relationship announced in April, Clipper and One Equity Partners have established strategic goals and
undertaken detailed reviews of production, commercial operations, remediation, budgeting and controls.  In light of these reviews and the
wrapping up of the remediation projects, the Company provides the following update.
    Turbine Production Ramp Up
    All of the remediated gearbox production and over 80% of the blade remediation program are now complete.  Conclusion of these efforts is
expected in Q308. The remediated turbines are performing well with average turbine availability on completed projects in excess of 95%. As
of July 25, 2008, 26 units have reached over 1,000 operating hours providing confidence in the design and operational characteristics of
Clipper's Liberty turbine.
    Of the cumulative 285 Liberty series 2.5 MW turbines produced as of July 25, 2008, 90 turbines are installed and 72 are commissioned,
with the balance scheduled to customer requirements. Clipper has more than trebled the number of field service engineers since 2007 in order
to meet its goal of commissioning more than 300 turbines in 2008, and over 400 in 2009. 
    Clipper's Cedar Rapids manufacturing facility has assembled 195 drivetrains year to date through July 25, 2008, including those used for
remediation, and produced a total of 140 complete new turbines, despite minor delays as a result of flooding in the area.  With a current
production run rate of 8 units per week and having produced 34 turbines in the last 4 weeks, Clipper expects to produce in excess of 750 MW
(300 turbines) in 2008. In addition, Clipper has substantially increased the level of quality control at its Cedar Rapids facility, at its
suppliers' facilities and at project sites. All turbine drivetrains now undergo a rigorous full power testing in Clipper's test facility at
the Cedar Rapids plant before shipment to project sites.
    Firm orders continue to grow with orders for 2009 delivery increasing by 228 MW (91 turbines) since the trading update in March. Clipper
has received its first international orders from two new large customers and expects to receive total firm orders for more than 875 MW (350
turbines) for delivery in 2009.
    Outlook and Current Trading
    Clipper expects to report a net loss in 2008 in the range of that reported in 2007; with nearly all the loss recognized in the first
half of the year.  The second half is expected to approach break-even (excluding potential gains from the Clipper development portfolio).
    Over half of the expected 2008 loss is related to direct and indirect costs of remediation.  These remediation costs include: the costs
for manufacturing, testing, shipping and installing remediated gearboxes and blades; the added costs from liquidated damages and penalties
for late deliveries; and additional field services costs.  However, given the advanced state of completion of the remediation projects, the
increasing rate of turbine production, and the performance of the turbines in operating wind projects, the Company believes that the
majority of the remediation and manufacturing startup challenges are now behind it.  
    Approximately a quarter of the forecast 2008 loss is expected to arise from the deferral of revenue into 2009.  As mentioned in prior
trading updates, revenue is generally not recognized until the turbines are fully installed, tested and commissioned; events which are
largely influenced by customer schedules. First half and full year 2008 earnings will be affected by the timing of revenue recognition due
to revised customer commissioning schedules, with some revenue moving from 1H08 into 2H08 and some 2H08 revenues carrying into 2009.  The
blade reinforcement schedule has also affected the timing of 1H08 revenue recognition, as previously installed turbines are not commissioned
until the blade remediation activity is complete. Since customer payments are typically based on production and delivery milestones (rather
than final commissioning), the delayed commissioning dates and related revenue recognition will have minimal impact on Clipper cash flow.
    Clipper's heavy investment in strengthening turbine quality processes and management of field activities will also contribute to the
2008 loss.  Most of the remainder of the anticipated 2008 loss relates to provision for inventory reserves and the financing that took place
earlier in the year.  The increase in inventory reserves is largely attributable to early-stage production learning curve issues such as
component rework and engineering changes.  The Company's cash balance exceeded $265 million as of June 30, 2008 and Clipper expects the
year-end cash balance to be slightly higher than the current balance.  The Company has fully repaid its $60 million secured term credit
facility, which leaves the company essentially debt free as at June 30, 2008.  
    Clipper believes the majority of its startup costs are behind it and that the Company will benefit from higher sales volumes and
improved pricing in 2009.  However, steel prices have recently risen from 0.38 $ per pound in 2007 to around 0.78 $ per pound, or over 100%.
 As previously disclosed in our 2007 annual report, a 10% increase in steel prices in 2007 would have resulted in $3.5 million of additional
costs. In 2007, Clipper produced 137 turbines and in 2009 is expected to produce over 350, increasing steel volumes by approximately 260%. 
If the recent increases in steel costs do not abate, and considering Clipper's fixed pricing for all its current 2009 orders, we would
project 2009 EBIT margins to be substantially lower than the 9-12% previously expected.  Clipper is undertaking aggressive cost reduction
and control programs and pursuing defensive pricing measures in order to reduce the impact of the unprecedented steel price increases.
    North American wind turbine market pricing in 2010 is already 20-30% above Clipper's 2009 pricing, which provides significant potential
for margin improvement in 2010.
    Clipper Project Development Portfolio
    Clipper has signed an agreement with BP Alternative Energy to create a 5,050 MW joint venture, Titan, to develop the largest wind
facility in the Americas.  The transaction transfers 1,750 MW of Clipper development assets to BP for a potential all in value of $62,000
/MW.  At closing, these assets will be combined with 775 MW of BP's existing Titan assets and Clipper's 2,525 MW share to create the new
5,050 MW joint venture.  The Titan project illustrates Clipper's new business model for project development activity where we will partner
with wind operators to combine our development assets and expertise with the partner's resources using Clipper turbines, and gaining an
opportunity for a carried interest for Clipper.  The Titan project accomplishes this, providing Clipper a staged payment mechanism for the
1,750 MW purchased, upside on Clipper's 2,525 MW share, and the sale of up to 2,000 Clipper turbines should full development be
accomplished.  
    Clipper believes this new business model as illustrated by the Titan transaction, creates higher shareholder value than the previously
announced CAPGEN structure and hence Clipper has discontinued pursuit of the CAPGEN structure and the associated capital raising.  Clipper
has continued to grow its development portfolio; prior to this transfer of 1,750 MW, Clipper had 10,500 MW of development assets.
    Conference Call
    Clipper's management will host a conference call for analysts and shareholders at 09:00hrs (London time). To join the conference call
please dial +44 (0)20 7138 0836 from the UK and +1 718 354 1172 from the US.

    About Clipper Windpower Plc 
    Clipper Windpower, www.clipperwind.com, is a rapidly growing company engaged in wind energy technology, turbine manufacturing, and wind
project development. With offices in the United Kingdom, United States of America (California, Colorado, Iowa, and Maryland), Denmark, and
Mexico and a ISO9001:2000 QMS Certified, 330,000 square foot manufacturing and assembly facility located in Cedar Rapids, Iowa, the company
designs advanced wind turbines, manufactures its 2.5-MW Liberty wind turbine and actively develops wind power generating projects in the
Americas and Europe. Clipper is a public company listed on the London Stock Exchange's Alternative Investment Market (AIM). Clipper's ticker
symbol is CWP.

    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 U.S. Securities Act of 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.
    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
    Joe Connolly
    Mark Chaichian
    +44 (0) 20 7820 1078

    Financial Press
    Charlotte Kirkham
    M: Communications
    +44 (0)20 7153 1531

This information is provided by RNS
The company news service from the London Stock Exchange
 
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